Grow your own fair tax mark

We don’t judge; we build bridges written by Meesha Nehru, project developer at Fair Tax Mark, is worth a read (along with the comments from Ben Saunders), and her FTM colleague Tim Hunt has posted Small start, big impact. He notes that since the launch of the FTM “much has been made of our similarities with the Fairtrade Foundation”.

This is understandable, and we saw last week that Alex Cobham, one of FTM’s technical advisers, suggested during a talk in 2011, on poverty and fair trade, that it might be time for a “fair tax label”.

My knowledge of fair trade is limited but I regard the movement as a force for good. I suspect that most people do, without really knowing what fair trade means or who certifies fair trade products.

The fair trade movement has its critics. Some of the criticisms are set out in this Wikipedia entry. Note the warning that the criticisms section “may compromise the article’s neutral point of view of the subject”, but there do appear to be some valid concerns. The article notes that there are “several recognised Fairtrade certifiers”. But the Fairtrade Foundation says it is responsible for certifying Fairtrade products in the UK.

One of the criticisms levelled at the new FTM – which is constituted, by the way, as a “not-for-profit community benefit society registered under the Industrial and Provident Societies Act” – is that the seven-strong FTM “team” is self-appointed. The initiative has the enthusiastic backing of Ethical Consumer.

And this brings me back to the question: “Who decides what is the ‘right amount’ of tax?

My initial reaction to the fair trade analogy was to suggest that reaching a consensus on what is “fair tax”, or the “right” amount of tax, is generally much more difficult than reaching agreement on “fair trade”, for at least two reasons.

First, some tax law, as the Office of Tax Simplification has pointed out, “may in fact be necessarily complex” and therefore difficult for experts and others to understand. (I would have said that some tax law is necessarily complex.) There are several taxes and thousands of pages of legislation and HMRC guidance.

Without detailed knowledge of a company’s tax affairs and a thorough understanding of (a) the tax system and (b) what amounts to aggressive tax avoidance as opposed to legitimate tax planning, it is difficult to judge whether any business deserves the accolade “Fair Tax Business”.

Secondly, tax policy is always a big debating issue at election time precisely because there is – inevitably – a range of opinions as to the role of government and how the cost of providing public services, infrastructure, security etc. should be shared.

And the UK’s tax system has so many quirks and anomalies that it is often difficult to discern the underlying policy behind a tax (or a tax relief). If there is no consensus on what “fair tax” is, how can we agree on what a “fair tax business” is? And if you think an FTM award is wrong, you may take the view that businesses that do not have the award are being unfairly penalised.

The FTM team appears to have addressed these concerns by setting criteria which allow a company that appears to be paying considerably less than the “headline rate” of corporation tax because of legitimate tax reliefs to obtain the mark – despite that difference – on the basis of points earned for transparency etc. One such legitimate tax relief is capital allowances, which are written into tax law to encourage investment in machinery. (Actually, it’s worth pointing out that a company claiming capital allowances pays the headline tax rate on the reduced profit, after deduction of capital allowances, not a reduced tax rate on the profit before that deduction.)

Unfortunately this approach means, as two tax experts have pointed out, that a company that is clearly engaged in aggressive tax avoidance may also qualify. This is a mistake and we can expect it to be rectified (but on the face of it that won’t be easy).

So, “who decides?” The FTM team claims to be “completely independent” and “accountable to anyone who cares to challenge us”. Some tax professionals have taken issue with this. Opening a debate on its Tax Transparency blog, the accountancy firm Mazars asked (without expressing a view itself):

“In the current climate, will a prospective business gain value from the FTM, making it worth the investment, or is it little more than a quirky gimmick that aligns ethical taxation to a left of centre political agenda?”

Nonetheless, the (modified) FTM criteria may win widespread support ­– not only from the “left”, because tax avoidance is not a left-right issue. And it may win support on the basis that people regard the FTM team as independent of government (which has, according to some critics, sold out to big business), business itself, and the accountancy and tax professions.

We may even see the FTM grow quickly and begin to follow in the footsteps of fair trade. It should succeed or fail on its merits so long as its founders and managers, and its criteria, are transparent and open to scrutiny and revision.

Many people will object to the FTM in principle, arguing that there is no need for it and that it will penalise ethical businesses that do not buy into it. There are least two options open to them.

The first is to engage in the debate and oppose the FTM on its merits. We are told that many large businesses are seeking to improve their tax reporting, and some of the large firms of accountants have stressed the importance of greater transparency. In any event, there are several initiatives in progress to require a form of country-by-country reporting.

A second option – possible but perhaps less feasible for most people – is for opponents to grow their own, rival tax mark. A tax transparency mark, perhaps?

The founders would be self-appointed. The TTM would succeed or fail on its merits. And what could be wrong with that?

[Update 15 March: See more comment and reaction on Twitter]

3 thoughts on “Grow your own fair tax mark

  1. One parallel with Fairtrade is that now many businesses ignore the Fair Trade Mark and state something along the lines of “traded fairly” (I can’t recall if it is that term which is protected for use by businesses registered with certain ‘other’ fair trade organisations or if it is another term). The expression that stuck in my mind is “fairly traded, not Fair Trade”.

    I might expect to see a similar response of “fairly taxed, not Fair Tax” *

    *”Fairly taxed, not Fair Tax” is a trademark of Ben Saunders…. 😉

  2. If we take the Fair Trade analogy a little further I think it shows some of the same problems that FTM will have, or already has.
    To begin with there is the fact that what constitutes “fair” is an arbitrary definition that may conflict with what consumers understand by “fair.” In the case of chocolate does it include all ingredients (e.g. cocoa beans and sugar), what about wages/labour conditions, self-owned or from larger corporates? ( See http://gentleworld.org/fair-trade-chocolate-a-myth/ for some views on this.)
    Do people really understand the FTM criteria – what is clear and simple about deferred tax, expected headline rate, and so on? And, as noted above, an avoider could pass the criteria and project an image of openness, honesty and trustworthiness to consumers and investors, rather than actually being any of those things.
    The certification standard is also not consistent internationally, so consumers are getting different views. If MNCs are included which standard would they adopt – the source or destination country? (See http://www.ethicalcoffee.net/fair.html)
    I also think the analogy also breaks down because Tax is often not an element of consumer decisions, or not easily applied. People may choose to boycott a coffee chain but I suspect many advocates of tax justice shop and sell on Amazon, use I Phones, and search on Google. It is even less open to consumer choice when it comes to larger companies that do not provide consumer products, e.g. infrastructure, water, and so on.
    If we believe WIki then the proportion of coffee or chocolate traded fairly is a low percentage of total sales. I suspect the FTM will have a similar market share. If we want the things many people do – including accountants! – like more transparency, an end to tax “nothings”, reduced international tax arbitrage, and so on, then that will probably come from more traditional methods of influencing and shaping policy, with the FTM a smaller piece of public pressure.

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