The policy purpose behind the Welsh Tax Acts etc (Power to Modify) Bill is laudable, but there are concerns about how it will work in practice, according to ICAEW’s response to the draft Bill. 

As the UK government continues to make changes to the stamp duty land tax (SDLT) regime in England and Northern Ireland, it is important that the Welsh government has the tools to be able to react, if the changes are likely to have a significant impact on land transaction tax (LTT) in Wales. 

The Bill should allow changes to be made quickly to the devolved taxes and react to changing external circumstances. However, changes would not be made through primary legislation, and there is a danger that any regulations made under the Bill could lack proper scrutiny.

“One of our principles of good tax policy is that tax legislation should be enacted in primary rather than secondary legislation,” said Frank Haskew, ICAEW’s Head of Taxation Strategy, in his response. “These proposals allow for changes to be made by way of secondary legislation (ie, regulations), which is contrary to our principles. That said, we understand the specific difficulties faced by the Welsh government responding to changes made by the UK government in relation to, for example, SDLT.”

One of the reasons for this is that Wales does not have an equivalent Finance Bill procedure for making changes to the Welsh Tax Acts, ICAEW understands. ICAEW recommendeds that consideration should be given to building capability to adopt that kind of procedure. 

“It would also ensure that a procedure is in place so that, if and when further tax-raising powers are devolved to the Welsh government, it has the necessary mechanism to make changes quickly. We understand that similar problems are faced in relation to amending the devolved Scottish taxes and similar calls have been made for a legislative process to allow for such changes to be made.”

The level of delegated powers must be proportionate to the problem they seek to solve, states the response. ICAEW supports reasonable and proportionate measures to address tax avoidance, which LTT, like SDLT, is at risk of.

The impact of LTT tax avoidance is potentially greater than for SDLT given its smaller tax base. However, it is far more likely to be charged at lower rates than for SDLT due to lower property values, which reduces the potential motivation to engage in tax avoidance. In practice, however, there is probably not much difference in the risk profile.

“Nevertheless, we remain concerned about the wide power under these provisions to make retrospective changes to the tax rules,” said Haskew. “Another key principle of a good taxation system is the need for certainty. In principle, we believe that the approach adopted to countering tax avoidance should be similar to that which is encapsulated in the so-called ‘Rees Rules’ which were subject to extensive debate in the UK Parliament in 1978 and which were set out at that time.”

Read ICAEW’s full response here.