The foundations of Tax Justice
I am often asked what I mean by "’tax justice’. As a result, and as a
contribution to the Briefing Sheet series I am developing, I have written the
following summary of what I think tax justice is. It is also available as a briefing
Tax justice is a broadly based concept. It relates to individuals and all taxable
entities. But it also relates to tax systems as a whole.
Tax compliance – the duty of the taxpayer
For the individual taxpayer tax justice is about tax compliance. This happens
when the individual seeks to pay the right amount of tax (but no more) in the
right place at the right time where right means that the economic substance of
the transactions they undertake coincides with the place and form in which
they report them for taxation purposes.
Tax and society
But tax justice is about much more than the individual: tax justice is also about
the existence of tax systems that promote social well being within and between
societies. It is about the creation of environments in which all people can
prosper. That necessarily means that the state institutions and businesses that
meet the needs of people can also prosper. But it means yet more than that: it
means that those who fail to prosper are protected from misfortune until such
time as they can prosper again.
That means tax justice is about four things above and beyond the duty of the
individual to be tax compliant. First it is about understanding why we tax.
Second it is about defining the attributes of a good tax system. Third it is about
defining the process that delivers tax justice and finally it is about
understanding transparency – without which tax justice is not possible.
The 5 Rs for taxing
There are five reasons for taxation. Tax is used to:
1. Raise revenue;
2. Reprice goods and services considered to be incorrectly priced by the market
such as tobacco, alcohol, carbon emissions etc. and by providing tax reliefs e.g.
3. Redistribute income and wealth;
4. Raise representation within the democratic process because it has been
found that only when an electorate and a government are bound by the
common interest of tax does democratic accountability really work; and finally
5. Reorganisation of the economy through fiscal policy.
If tax justice is to prevail taxes must be set taking all these considerations into
The 10 Cs of a good tax system
An efficient taxation system has nine attributes with one over-riding
characteristic to which they all contribute. An efficient tax system is:
1. Comprehensive – in other words, it is broad based;
2. Complete – with as few loopholes as possible;
3. Comprehensible - it is as certain as is reasonably possible;
4. Compassionate – it takes into account the capacity to pay;
5. Compact – it is written as straightforwardly as possible;
6. Compliant with human rights;
7. Compensatory – it is perceived as fair and redistributes income and wealth as
necessary to achieve this aim;
8. Complementary to social objectives;
9. Computable - the liability can be calculated with reasonable accuracy;
All of which facilitate the chance that it will be:
10. Competently managed.
In combination these are key attributes of a good tax system.
The 6 steps to tax justice
Tax justice can be defined as a six stage process:
1. Define the tax base. This is the first essential step in creating progressive
taxation and in promoting the better use of resources within society.
2. Find what is to be taxed. If the tax base cannot be accurately located then
there is no point trying to tax it.
3. Count the tax base. Unless the tax base can be quantified it cannot be taxed.
4. Tax the tax base at the right rates of tax. In the process making sure the
inter-relationship between the various tax bases is properly managed to ensure
that the essential revenue raising, repricing and redistributive qualities of a
just tax system is vital.