21st Century Tax Policy

The three important questions that tax authorities and government officials are grappling with in this 21st Century are centered around How to tax? What to tax? And Where to tax? In a world that fast paced and ever changing as a result of several factors, the means and mode in which government collect tax has to be tailored to the times. Studies on tax have shown that tax system changes slowly with regards to government adaptation to its collection and the type of tax they wish to collect.

Firstly, technology has been the most prominent driver in recent times. The Information and communications revolution which has emerged has continuously changed the methods and procedures of how people work and live their daily lives. Recent developments have swung the pendulum towards the sharing economy, there are increasing technology centered businesses that are fueling the growth of the sharing economy and the use of online platforms.

Secondly, globalization. Technology has also gone further to open up the world economy through the expansion of trade and investment, in fact, the world is now a global village as the internet which is a product of technology has bent time and space, connecting businesses irrespective of their geographical distances. New players have risen to occupy central stage in the world, most noteworthy and worth mentioning is China, which has seen its GDP increase tremendously from about US$500 billion back in 1995 to an awesome $12 trillion in 2018. In fact, the entire Asian continent has already become the most significant region in the world economy. It is projected that by 2030, China will become the world’s largest economy, bigger than the economy of the United States. It is also forecasted that at the end of the next decade, it is most likely that the Asia Pacific economies will contribute more to world GDP than the traditional Western countries which include both North America and Europe.

Thirdly, there is an increasing recognition of the fact that the entire world faces major environmental challenges which are evident in changing climate, with its attendant water scarcity in some parts of the world, flooding due to rise in the level of water in major rivers across the world, and the depletion of key natural resources.

Fourth, the world’s population in major Western and Asian economies is ageing, many economies around the world face a major demographic shift in the first half of this century as their birth rate has dropped drastically. However, this is different in African economies which are seeing a population explosion, because of their high rate of population growth and low death rate due to advancement in health and living conditions.

In light of these highlighted occurrences, a pertinent question which borders around how tax systems should develop and change in response to these major challenges. Also putting into considerations as well as how companies have become increasingly more mobile globally, aided by technological revolutions, the need for international co-operation on tax matters cannot be overemphasized. In the face of businesses becoming even more virtual, made possible by the continual expansion of the digital economy and new technologies, this makes it increasingly difficult to accurately point the true source of profit and where it is geographically generated from. This has resulted in the business tax burden shifting towards property taxes, sales taxes and employment taxes in many countries.

Although environmental taxation has not completely developed, there is still potential for it to become the main source of revenue in a society where climate change and environmental threats are being addressed more seriously.

Finally, in a society where the population is slowly ageing, personal property and wealth may become a bigger target for tax authorities. This is already been deployed in many economies, Stamp Duty Land Tax is an example in the UK which targets new revenue-raising initiatives.

Since it is hard to lower overall tax burden without having negative effect on the delivery of both social care, health and public service in most countries around the world, the scope for relieving the burden of taxes on employment, income and profits hinges on the need to create new revenue avenues from environmental levies and taxes on property and wealth. Therefore, a new blueprint for tax systems will continually be a top priority for government agencies and the international community, focusing both on what is expected to be taxed and the tax collection processes.