‘Senedd must take the lead and educate Wales about devolved taxes’

With a recent Chartered Institute of Taxation poll finding that a third of Scots are unaware of the Scottish Parliament's powers over taxation, can we say that Wales is any different?

We are especially concerned that, in our experience, awareness and understanding of the Welsh Rates of Income Tax (WRIT) remains low among Welsh taxpayers.

This is just one of the areas that the new Senedd must address after the Welsh Elections.

Some lack of awareness is understandable in Wales because the last Senedd did not make any changes to income tax; this contrasts with the last Scottish Government, which has made some significant changes to the rates and bands of Scottish income tax. Whether these have been welcomed by taxpayers is yet to be seen and the larger number of cross border workers in Wales potentially raises significant concerns.

Future tax changes were a key talking point among the different Welsh parties in the recent election campaign.

Wales must better Scotland’s attempts to educate the public about devolved tax. Indeed, better tax education would not go amiss anywhere in the UK.

Noting that the challenge is not unique to Wales, in the early days of establishing any distinct regime, there is an opportunity for politicians to better involve the public in that journey.

The next Senedd must take the lead and continue to put the ‘T’– ‘the taxpayer’ – at the heart of its tax policies, especially in its communications and education strategy, much as it has done so far with the Welsh Land Transaction Tax (LTT) and Landfill Disposals Tax (LDT).

But it must go further.

Welsh-specific research is needed to establish Welsh taxpayer attitudes to paying more or less tax - specifically WRIT or LTT - and to what extent increases or decreases will drive behaviour such as re-locating to or away from Wales.

After all, if people fail to understand how the tax system works, they are, arguably, more likely to fail to comply with the rules and regulations. In the case of the devolved taxes, it also means that taxpayers may not know that the Senedd is now responsible for raising some of the taxes they pay. 

Providing the public with accurate, accessible and easily understandable information about Welsh taxes would help to communicate to taxpayers their rights and responsibilities within the tax system, and show how the money they are contributing is being used to support public services.

The most recent Senedd marked a pivotal stage in the devolution of taxes in Wales with the first new taxes in Wales for 800 years.

It is a good time to reflect further on how it went.

There are some very good things, such as the Welsh government’s tax principles providing a clear framework and the consultative approach to LTT and LDT.

But there are concerns on the horizon.

A clearer articulation of policy objectives is needed for specific measures such as the LTT surcharge on second homes where it is not entirely clear whether the policy intent is to deter the purchase of additional residential properties (so that in fact lower revenue attributable to higher rates in Wales would represent a fulfilment of the policy) or to raise revenue which may then be applied to building good quality, affordable housing or a combination of both as an offset to the potential adverse impact of second home-buyers.

The new Welsh Government needs better ways for taxpayers and advisers to report awareness or concerns about tax avoidance or evasion. And it can even look at the benefits and challenges of estimating a Welsh-specific ‘tax gap’, as a way to identify threats to its tax base.

Unfortunately, immediate changes to the devolved taxes are sometimes driven by changes made by the UK government and this restricts the ability to consult when changes are announced with little notice.

The COVID-19 pandemic has highlighted the need for better pro-active cooperation, both at civil servant and ministerial level, between the Welsh and UK governments to ensure the devolved taxes operate effectively.

It would be sensible, and improve the policy-making process, for the devolved governments to receive forewarning of changes (through confidential channels) to equivalent taxes that apply in England (and Northern Ireland).

We also want to see the Welsh Revenue Authority’s Charter feature more prominently in its website and publicity.

At present much of the work that keeps our tax regime ticking over is noticed only by the keenest of observers. And there is concern about whether the Senedd will have the time and space to scrutinise any future tax measures. 

The case for the introduction of an annual Welsh Finance Bill, with perhaps the establishment of a dedicated Welsh Senedd committee to oversee Welsh taxes, will strengthen if devolved taxes provide an increased share of revenues to fund wider policy areas dealt with by the Senedd. This would give Members of the Senedd a set point in the parliamentary calendar to keep the regime under review. It could help ensure increased accountability while giving taxpayers a chance to know more about the tax changes that are being made in their name.

By Lakshmi Narain, Chair of the Chartered Institute of Taxation’s Welsh Technical Committee.