Opinion Former Article

Remember Adam Smith say CIOT, as Institute cautions against overzealous Scotland tax devolution

In its submission1 to the Smith Commission on devolved powers to Scotland, the Chartered Institute of Taxation (CIOT) has suggested a hybrid approach to devolution that includes both full devolution of some taxes and the possible assignment of an appropriate share of revenue of taxes collected in Scotland.

The Smith Commission, established by the Government and led by Lord Smith of Kelvin, has been tasked with assessing and progressing devolution commitments on further powers to the Scottish Parliament2.

Moira Kelly, Chair of the CIOT’s Scottish Technical Sub-Committee, said:

“Scots expect a greater say in what they spend and how they are taxed to pay for it and there is now broad political commitment to the devolution of greater powers to Scotland. However, we must be wary of straying into a post-referendum sentiment of ‘anything that can be devolved, should be devolved’. Rather, policy regarding tax devolution should be the product of reasoned logic and the current (not envisaged) capacity of Scottish institutions and the taxpayers themselves to make adjustments for the significant changes in administration and collection which will result from devolution.    

“Subject to EU and international law3 a number of taxes currently administered by HMRC could, in principle, be devolved north of the border. Our expectation is that Revenue Scotland, which will start collecting some taxes in 2015, will need time to establish itself and build the required resources or expertise to collect taxes in the most efficient way possible. If the cost of collection and the complexity of administration militate against the fiscal logic of devolving certain taxes4 then it makes far better sense to wait until the scales tip in the opposite direction. Indeed, it would not make much sense at all if the incremental benefits from devolution were  little greater than the cost of its collection, challenging one of the key principles of taxation, the canon of economy, espoused by Scotland’s own Adam Smith.   

“In deciding which taxes to devolve, we believe there are three critical criteria:

1.       Simplicity – taxes must be simple and capable of being understood by those liable to pay

2.       Stability – certainty will be undermined if frequent changes are required to achieve tax objectives

3.       Consultation – a sustained consultative process with those upon whom the tax burden will fall

“The obvious areas for devolution are taxes where the event being taxed is clearly identifiable as having taken place in Scotland. Thus, the Land and Buildings Transaction Tax (LBTT) and Landfill Tax (LFT), which are already devolved were obvious candidates. However, the devolution of business income taxes (including corporation tax), for example, presents a far greater problem in that business activity may occur partly in Scotland and partly elsewhere. Despite legislation preventing double taxation in this respect, such rules can be administratively highly complex5.

“We agree with suggestions that the assignment of an appropriate share of revenue of the tax collected to Scotland, while not providing the total accountability nor the kinds of powers for specific policy objectives the Scottish Government seeks, does provide an indirect advantage to Scotland in that greater economic growth as a result of local policies would increase revenue. We recognise that pragmatically, the assignment of tax revenue would be best considered, and subsequently implemented, at a time when there are clearly defined accurate measures of revenue attributable to Scotland. We do not believe it is currently possible to achieve this for VAT or corporation tax. Other countries have developed tax models which allocate revenue on the basis of particular regional circumstances; we believe Scotland can be treated in a similar way”.


Notes to editors

1.        The submission of the Chartered Institute of Taxation can be read in full here.


2.        Further information on the remit and work of the Smith Commission can be found here.


3.        These rules would preclude a tax such as VAT from being devolved and may limit the powers of a Scottish administration in respect of certain taxes. For example, if excise duties were devolved, Scotland could not impose a favourable rate of duty on whisky to encourage consumption of local products over those from other EU Member States.


4.        Capital Gains Tax (CGT), for example, is a fairly complex tax which generates a comparatively small amount of revenue. If this were to be devolved, it would first be necessary to consider what should determine the right to tax.

5.        Furthermore, if business income taxes were devolved in full, a complex system similar to that which operates in respect of taxation across international borders may have to be developed in the UK to ensure that any benefits from having such powers might outweigh the costs of implementing such a system.

6.       The Chartered Institute of Taxation


The Chartered Institute of Taxation (CIOT) is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.

The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries.  The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.

The CIOT’s 17,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.

James Knell
External Relations Officer

+44 (0)20 7340 2702

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