What makes a good tax system?

All countries must raise taxes and the task of governments in meeting this requirement is not an easy one, particularly in the current economic circumstances. What is important is how the tax system fulfils these objectives. The tax system should encourage, not discourage, business growth. Higher taxes should contribute to improving the quality of life for citizens, and tax administration should be as professional and efficient as possible.

The suggestions below have evolved from discussions with businesses, governments, PwC colleagues, and others from around the world.

What makes a good tax system? Here are some hallmarks:

It has a clear purpose:

• Raises revenue to fund public expenditure
• Balances the budget (over a period of time)
• Meets social objectives
• Improves human development

It is strategic:

• Stable and consistent, enabling long-term business investment
• A fair value for natural resources
• Encourages international trade
• Encourages change in behaviour which society is agreed upon

It is coherent and efficient:

• Minimises the administrative burden
• Clear and understandable rules
• Consistent with wider (non-tax) law and international principles
• Consultation on policy and administration

It is fair and transparent:

• Based on law rather than the whims of tax authorities
• Consistently enforced
• Independent and effective route for resolving disputes with the tax authority
• Mutual trust and respect between taxpayers and the tax authority