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A PAPER by Peter Scrafton FIRRV, FCIArb, MRSA(Hon) Solicitor (Non-Practising)

June 2003.


All of the powers of government stem from the constitution of the state, whether that constitution be written, as in most cases, or unwritten as in the case of the U.K.  Those powers have to be exercised in a constitutional manner, and it is useful to introduce, at the start, an important doctrinal concept; namely, that of the doctrine of the separation of powers.  Imagine that the constitution is a stool, upon which sits the nation and all that goes with it.  That stool has three legs, which are, respectively, the legislature, the executive and the judiciary.  Each leg has to be independent, but without the presence of all three, taking equal strain, the stool will become unstable.  You can then imagine how easy it would be for the state to fall into anarchy.  There must, therefore, be a system of checks and balances, which seek to ensure that each of the three branches of government is independent of the control of the other two, but at the same time, it cannot operate on its own, without the other two.


Bearing that in mind, it is appropriate to tackle the legal framework of a property tax.


Why have a property tax at all?  One must remember that the value of the land within the boundaries of a state is a tremendous resource: ownership or occupation  of land is a measure of wealth; and as the value of land rises, whether or not it is improved, however it is used, it will have a value to its owner or occupier, and thus is a legitimate source of revenue.  The measure of value is another matter, which calls for separate and detailed consideration, which requires detailed consideration and consultation, before the drafting process begins.



The legislation for the tax will, no doubt, be drafted by the executive, the civil service (under the instructions of ministers), and will be considered by the legislature.  The executive will have regard to the constitutional propriety of what is proposed, and will advise ministers accordingly.  It will also seek to ensure that the proposed legislation reconciles with previous legislation on the subject, or with other legislation in interlocking areas.


But, the first thing that the draftsman needs is clear and precise instructions.  Muddled instructions produce muddled thinking, then muddled drafting, poor legislation and then litigation, with cries for further reform.


The legislature will examine the proposals to see whether or not they are politically desirable, and they may correct errors made by the executive.  Thereafter, whether directly or indirectly, it is up to the judiciary to interpret the law and to declare whether a provision is lawful.


Scope of Legislation


The Basis of the Tax
Fundamental decisions must be taken as to the nature and extent of the tax to be created and imposed, as to the interests in land to be assessed, and as to the method of estimating and fixing liability.  Consideration must be given to the nature and scope of any exemptions, and as to whether owners are to be taxed, or occupiers, or both.  This can be a political consideration; but it may be influenced, also, by the extent to which evidence of value is available, from sales or lettings.


The factors to be taken into account when determining levels of value must be identified.  For example, is he property to be valued on the basis of its highest and best use?  Or on the basis of its actual use?  What physical and economic factors are to be taken into account?




Any system of taxation, in order to be workable, has to be seen to be fair.  If the public feels that the amounts charged are excessive, then they have to have the right to object to their own assessment, and to force the taxing authorities to justify the amount sought to be levied.


Administration and Collection


Strategic decisions need to be taken as to whether or not the tax is to be a national one, or a local one, and the extent to which (if any) individual administrative areas are to be permitted to set the tax rate, whether wholly or in part, and the extent to which they will be allowed to keep the revenue raised.  There can be constitutional implications in countries where only the legislature is permitted to impose taxes.


The remarks which I am about to make in relation to appeals against assessment apply equally to matters of administration and collection.  Indeed, there are to be added provisions governing such matters as the manner in which the tax is to be billed, and the frequency, together with the information to be given to the taxpayer with that bill.  Provision must be made for the tying of assessments to bills, by a cross-referenced audit system, so that when the bill is sent, it is correct, and when it is paid, the authorities can tell that it has been paid, and by whom.  What powers are the authorities to have to effect collection of the tax? And to whom do they account for money demanded and received?


The Role of the Courts


The courts have an impartial and a dual role.  They are there to see that the taxing statutes are enforced fairly, and to seek to ensure that no one pays any more or less than they are obliged, by law, to pay.  To that extent, they are there to defend the taxpayer from the executive, while at the same time enforcing collection of taxes properly charged against taxpayers, to the benefit of the executive, as prescribed by the legislature.


As far as the inter-relationship with the legislature is concerned, while, constitutionally, the legislature is usually the supreme law-making body, the provisions of the laws which it passes may be challenged in the courts, and declared unlawful if they are not within constitutional powers.


The same applies to executive acts by ministers, or to the acts of the civil service.  If an action is not carried out in accordance with statute, then that act may be struck down.


It follows, therefore, that the judges must be, and must be seen to be, completely independent of the other two arms of government.


Development of Case Law


As the judges decide cases on individual sets of facts, they apply law and interpret the law so as to discover what the legislature intended when it passed the relevant statutes.  Gradually, a body of case law builds up and is of assistance to practitioners in deciding what particular provisions mean, and, therefore, whether it is necessary, or desirable, to bring further litigation.  That body of precedent may, or may not, be binding.


Organisational Requirements of the Appeals System
When establishing an appeals system for the property tax, it is necessary to consider the establishment of the back up to the judiciary, or to those sitting in a judicial capacity.


Is the administration of the appeals system to be handled centrally, or locally? The answer, in each case, may depend upon individual structures of administration, and the answer may also vary, according to the number of tiers of appeal bodies there are going to be, and where they are to be located.  Is it to be under the control of the Ministry of Finance, the Ministry of Justice or the Ministry of the Interior?  All public service departments, as far as their administration is concerned, should be politically accountable.


The answer ought to be that the overall administration should fit the appellate structure and should be readily comprehensible to those using the system.


Independence of Appellate System from Taxing Body


It is crucial that the appeals system be, and be seen to be, independent of the body creating or imposing the tax.


Resource Allocation


In order to function properly, an appeals system must be properly resourced, as must any other system.  A balance must be struck between the need for economy and the need to ensure that the system operates fairly.


Human Resources – The system must be suitably staffed by an appropriate hierarchy of people qualified to deal with the administration of a legal or quasi-legal system.  This falls into two categories, the administration of the office, and the administration of the cases in the appeal system.


Procedures – Dealing first with the appeals themselves, the function of procedures should be to see that cases move smoothly from their inception to their disposal, that the issues between the parties are defined, that the case is allocated to a judge and that a date is fixed for a hearing.  That hearing, and its subsequent decision, should take place at minimum cost to all parties, and the procedure should contain extensive powers requiring agreement on matters of fact, exchanging reports, agreeing photographs, plans and so on, so that all parties know in detail, before the trial, the case which they have to meet in adequate time to enable them to prepare for it.  Are these procedures to be laid down in primary or secondary legislation?  Are they matters with which the legislature will wish to concern itself, actively; or are there to be powers, delegated to a greater or lesser degree, to the Minister responsible?


Hardware, software, document retrieval – The administration of the system must be properly managed.  As the parties to cases will be bringing in their pleadings and, possibly, valuations, in addition to other statements and papers, it is unreasonable to expect everything to be computerised.  This means that the administration procedure must have an adequate file tracking system, and a system for bringing matters forward for the consideration of the administration, perhaps when time limits for filing documents expire, and nothing has been done by the parties.  Ultimately, perhaps, file tracking and the statistical matters as well as allocation of court time, and records, can be dealt with on a computer system.  It is probably a good idea, when computerisation is suggested, to wait to see how the system develops before seeking to acquire a suitable system.


Human Resources

Recruitment – Circumstances will vary from country to country, of course, but it will probably be appropriate to recruit for the appellate administrative structure mainly from municipal and from central governments.  Differing levels of academic attainment will be required, from those who undertake clerical duties, to those who are to fill the senior administrative posts and possibly to serve as clerks to tribunals or as minor judicial officers in second tier tribunals.


Training – All will need training, according to grade.  The system will have to be designed in sufficient detail to enable this to take place, ensuring a core of common material, as well as matters which are job specific.  Inevitably there will have to be some overlap as those in higher grades cannot be expected to give proper supervision unless they understand themselves properly the tasks set to those below them.  Those dealing with the public should be sufficiently conversant with the appeal system to be able to inform those making enquiries, but care should be taken to ensure that officials are restrained from giving anything resembling professional advice to litigants, for to do so would be to threaten the impartiality of the system of a whole.


Those fulfilling judicial functions will require special training.  Dependent upon how the system in each country is to be established, and the basis of the tax to be imposed, that training will have to be structured.  It may be decided that the ordinary courts are to deal with appeals.  For so long as the system does not involve any element of valuation, then it may be possible for the existing judiciary to deal with cases.  However, to the extend that the system evolves into a value based system, the appellate structure will need to be a meeting place of the professional disciplines of law and valuation, and the judiciary will have to be trained accordingly.  It may be desirable, and ultimately necessary, for judges to sit with trained valuers and assessors, or indeed for trained valuers to sit in a judicial capacity – provided of course that they have access to sufficient legal training.


Qualifications – All staff should be encouraged to obtain qualifications.  While these are not necessarily a guarantee of ability in any particular area, they are an indicator both to promotion boards and to the public of the commitment of the individual and of their own interest and abilities in their own job.


Professional institutes – These are developing in the emergent democracies and a close association between the appellate system and the institutes is to be encouraged.  If the judges and minor judicial officers are members of the different Institutes and, as years go by, practitioners appearing before the courts also have the same qualifications, then communication between the judiciary, the appellate system and practitioners will be much closer than otherwise would be the case, and it would be possible for discussions to be held, whether formally or informally, to ensure the improved working of the system.


Structure of Appeals System

Informal review – It is desirable to have a process whereby if an assessment is objected to, it can be dealt with without recourse to a court or tribunal.  If there is a clerical error, then the assessing officer or body should be able to rectify this, and there should be time for negotiation and settlement by agreement.


Summary appeal body – Quite a few appeals will be resolved at the informal stage, and many others may also be resolved by discussion when it is known that an appeal hearing is pending.


The description of the initial appeal body as “summary” should not be mistaken for “rough”.  What is meant here is that the job is done on a local basis.  There is a great deal of virtue in a system which allows for cases to be heard by a person or body familiar with the area and perhaps with the people in question.


If the summary appeal body is not the local magistrate, suitably trained, then it may be that it is a tribunal of three unqualified people, assisted by a suitably trained clerk.  That clerk might, for example, be a suitably trained local lawyer who could operate the office from his own professional premises, or if size permits or dictates, then there could be an office with a clerical staff with the professionally trained person at the head of the office sitting in court with the members of the lay tribunal and advising them.


Further appeal body – While the summary appeal body would be essentially a local affair, the further appeal body would be regional or national, and it may be that, if cases are to be reported for use as precedents, then they could be reported at this level.  It is important to ensure consistency of treatment of similar cases throughout the country.


As the system becomes based on value rather than indices or other factors, it is at this level at which the trained valuers should first be introduced to sit in a judicial capacity.


Statutory control – All of these bodies will of course be established by statute, which will confer their respective jurisdictions upon them.  They will only be able to act in accordance with their jurisdiction and their actions will susceptible of appeal if they stray outside that jurisdiction.  It follows of course that, when the structure is being established, great care must be taken to ensure that the jurisdiction conferred upon the appeal structure is sufficient to deal with the tasks which the system is to be required to discharge.


Independence – The need for independence of the appellate system from any judicial system cannot be over-stressed.

Procedure on Appeals
These again are matters which may conveniently be dealt with, if constitutionally possible, under powers delegated by the legislature to Ministers, in order to avoid taking up the time of the legislature on less important matters, and in order to give a degree of flexibility to permit amendments with relative ease, when it is perceived that change is necessary.


Hearing of appeal – Mention has already been made of the need for rules of procedure for the processing of appeals to the stage before they reach trial.  It is appropriate here to consider for a few moments matters of pleading and interlocutory procedures such as time limits and enforcing these, and procedural devices to ensure that each party to an appeal sets out clearly the essential elements of his case, so that the other may know how to meet it.


Rules of evidence – Consideration will have to be given as to the degree of formality of any hearing.  Before the summary appeal tribunal, it may be that most of the formalities can be dispensed with, although that tribunal should at least expect the parties to have discussed the case in some detail before it gets to court.  At the higher level, where a case may be reported as a precedent, the necessity of getting the full facts out and ensuring that the case is fully argued, is greater, and it may be felt therefore that a greater level of formality is justifiable.  It should be remembered, however, that, if individual national systems move towards value bases, then much of the evidence to be given by witnesses will be given by experts acting for the different parties, and suitable latitude will have to be allowed in the application of those rules of evidence to allow evidence of opinion to be admitted – for the evidence of experts is essentially that of informed opinion based upon knowledge of the full relevant facts.


Agreements – There should be nothing in the appeal system to prevent an appeal from being compromised, at any stage, either by agreement or by withdrawal.


Arbitration – If the parties choose to, they may select the appellate tribunal to be the arbitrator of the dispute, and to be bound irrevocably by the decision of that tribunal.  It may be appropriate to confer such a jurisdiction, particularly if the tribunal is to have a function in other areas in which the valuation of land is relevant, such as compulsory purchase, capital gains, inheritance tax, rent reviews or participation in the urban planning process by determining compensation for the revocation or discontinuance of a planning permission.  In the case of land tax, however, the government side may well be unwilling to be bound by an arbitration award, so both kinds of jurisdiction should be available.


Assimilation of the Appeals System with the Legal System

The appellate structures described have the waters of law and valuation flowing through the same channel.  There has to be a last resort, however, and it is suggested that the further appeal body should be the final court or tribunal of appeal as far as matters of fact and valuation are concerned.  Subject to individual or national rules, however, an appeal might go forward to a higher court, perhaps the Supreme Court, on a point of law only. Again, the way in which this is done would have to be a matter for individual national tailoring, but one way of informing the higher court of matters of fact and valuation would be for the relevant notice of appeal to have annexed to it a copy of the written reasoned decision of the further appeal tribunal, which will set out matters of fact and valuation, sufficient to demonstrate the route taken by the further appeal tribunal to reach its decision.


Summary of Overview

There are many factors to be taken into consideration before the draftsman receives instructions to put pen to paper.  Local problems will require local solutions; and, although external advice may be helpful or, to a greater or lesser extent, desirable, the basic point remains.


As ever, beware of the people whom Dr Jeffrey Owen, of OECD, calls "consultancy tourists", of those who will tell you "We do it this way, so that is the only way to do it", and those selling computers and software who are keen to sell off-the-shelf packages.




This skill is to a large extent one on its own, and those who draft legislation are typically tax experts in the Ministry of Finance, and are infrequently lawyers or specialists in drafting.  It must also be said that foreign advisers who assist them can be lawyers, accountants or economists with a background in taxation; but they do not usually have an expertise in legislative drafting either.  I will therefore say just a word about drafting technique.


The effectiveness of a tax law is enhanced if its words are meaningful, intelligible, well thought out and well organised.  Many tax laws do not come close to meeting these criteria.  The tax laws of countries with established and sophisticated systems can be particularly impenetrable, as qualifications and exceptions have been heaped on top of existing rules.  In this sense, those working in developing and transition countries have an opportunity to produce better laws than those which exist in developed countries.  Poor drafting often leads to substantial problems in implementation of a new tax law that could have been avoided.


Do bear in mind that, if the law being drafted relates to property tax, it is prudent to work with the other relevant Departments of State, to discuss with them what it is that they and each of them is trying to achieve, so that the overall policy objectives of the Government as a whole may be achieved.


The Keys to Drafting
The four keys to drafting (and there is barely time to gloss over these in the time available) are:-


• Understandability
• Organisation
• Effectiveness
• Integration

Understandability refers to making the law easier to read and follow. 


Organisation refers to both the internal organisation of the law and its co-ordination with other tax laws.


Organisation  is a term which contemplates not only the style and structure of the legislation, but also its co-ordination with the Constitution and with other laws, and the structure and operation of the system or procedure which the law is intended to institute and/or to govern .


Effectiveness relates to the law's ability to enable the desired policy to be implemented. 


Integration refers to the consistency of the law with the legal system and drafting style of the country concerned. 


These criteria are, of course, interrelated and somewhat overlapping.  Organisation is important for understandability for example, and all the criteria contribute to the effectiveness of the law.


The criteria sometimes conflict.  For example, a simple statute may be rejected as inequitable, because it does not recognise the differences in situation of different taxpayers.  A statute that provides too much certainty may conflict with the goals of equity and revenue raising (because the certainty can be exploited by private sector tax planners).  In many cases, however, there is no conflict; complexity that is merely the result of bad drafting can be eliminated while at the same time providing greater certainty and a clearer articulation of the policy.


The Goals of the Draftsman

A well drafted tax law spells out with precision the matters that are within its scope.  But precision is not enough.  A law should not be precise at the expense of being complicated and impossible to understand.  The easier a tax law is to understand, the lower will be the compliance costs, both for taxpayers and for tax administrators.  It is particularly important that a tax law be easy to apply (compared with other public law for example, a law governing the generation of toxic waste or one governing building codes) because the tax law applies to nearly every physical and legal person in the country with respect to countless transactions every day.  The fact that a tax law must be applicable to so many transactions in an efficient manner has an important influence on how the law must be drafted.  In particular, there is no room for sloppiness.


A tax law must be effective in achieving the policy goals of the legislator, both in terms of the amount of revenue to be raised - with an eye to equity, efficiency and simplicity - and the items and persons to be taxed.  Good drafting goes hand in hand with the specification of policy.


The Principle of Acceptability

Another great task for the policy maker, and eventually for the officials and practitioners who have to seek to operate the statute, is that it should be acceptable to those whom it is supposed to tax.


The principle of equal treatment under the law applies not only to taxation but to all laws.  It can be viewed as an application of the concept of legality, under which the law must be applied without exception to all those in the same circumstances.  It has two meanings, one essentially procedural and substantive.


The procedural meaning is that the law must be applied completely and impartially regardless of the status of the person involved.  This means that no-one may receive either preferential or discriminatory treatment in the application of the law or may be denied procedural rights to challenge application of the law to him or her.


The substantive meaning of the principle of equal treatment starts from the position that persons in equal circumstances should be treated equally.  Without clarification, this principle does not mean very much, because it admits that people who are not in the same circumstances can be treated differently.  Therefore the question becomes whether laws are prohibited from using certain criteria to discriminate between persons.  While the list of prohibited criteria differs between various jurisdictions, they usually include ethnicity, religion and gender.  The exact application of this prohibition against discrimination in a particular country will depend on first, whether the courts are competent to strike down legislation as unconstitutional and, second, what kind of discrimination is prohibited under the constitution.


The Principle of "Fair Play"

The principle of fair play or public trust in the tax administration is slightly different.  It means that the taxation authority must not be allowed an unfair advantage in its dealings with taxpayers.  Application of this principle suggests that, first, the authority must notify a taxpayer of any action the authority may take relating to that taxpayer, second, that during litigation a taxpayer must be afforded all the rights of process allowed to the authority and, third, that the authority must be bound by its interpretation of the law as applied to a taxpayer's particular situation.  In most countries these rules of fair play are part of the general administrative law.  However, exceptions to these rules can be made when fair play does not suffer as a result.  For example, an authority may take action without notice if it reasonably suspects that the taxpayer would destroy evidence or flee the jurisdiction.


The Object Lesson

There is one other aspect of fairness which needs to be examined and that is the aspect of acceptability to the population to be taxed.  Sometimes the brightest ideas of policy makers and legislators can result in social unrest.  By the 1770's, the legislative assemblies of the American Colonies had become embittered by the imposition of taxes upon their people by the British Government, without the local legislatures having the opportunity of making representations about them.  It is also known that one of the causes of the French Revolution in 1789 was the burden of taxation, whether it be the corvιe or forced labour tax, or the gabelle, which obliged every man woman and child to buy from state production establishments, a minimum annual weight of salt, which far exceeded any family's requirements.


But it happened in England as well, a long time previously.  King Richard II had the bright idea of imposing a tax on all of his subjects – not just the landowners.  That was in 1381.  The peasants revolted and marched on London.  The King himself had to ride out from the Tower accompanied by, among others, the Lord Mayor of London, in order to listen to the grievances of the people which had to be redressed.  The leader of the revolt, named Wat Tyler, was killed in a scuffle with the Lord Mayor.  The dagger which killed Tyler is preserved and it is represented upon the coat of arms or badge of the Corporation of London to this day.


There are those, though, who do not learn from history.  Six hundred years later, Mrs Thatcher thought that it would be a good idea to replace the property tax on domestic property with a charge on every adult citizen.


On paper this might have seemed a good idea, in that those who used local authority services would actually pay for them - a perfectly sensible application of the principle: "To each according to his needs from each according to his means".  No longer would little old widows still living in the house into which they were married 60 years earlier have to pay more than a family of five living in a municipal house with five incomes coming into the premises.  Those who had the incomes and those who used the services would pay for them.


In some parts of the country it almost worked, but there was a tidal wave of protest.  So many people had been used to paying so little by way of local taxation, that the people living in the municipal houses, even though they had five incomes coming in, quite simply refused to pay.  There were tremendous jams in the courts and in the end there was rioting in the streets. It is said that this was the beginning of the end of Mrs Thatcher's term of office as Prime Minister.  Instead the tax was modified to contain an element of the capital value of the house or apartment in question, topped up by an additional charge of up to 100% if there were two or more adults living in the property.  A single adult would attract an additional charge of a mere 50%.


In order to implement this there was very swift and rather rough and ready valuation exercise carried out in relation to all domestic property which put each house or apartment into a band of value, the band attracting a particular level of tax to be fixed annually by the municipality.


That charge has been accepted.  The little old ladies pay in some cases less than they did under the old system, and those living in the municipal housing pay more than they used to pay (which in truth was very little) but a great deal less than they would have paid under Mrs Thatcher's system.  The tax has been accepted and it is believed to be working well.  We are now talking about a revaluation of what is called the Council Tax,  coming up in a few years.




Perhaps the greatest skills of the draftsman are clarity of thought and ability to communicate, in the sense of listening to and taking account of the views of those who have a contribution to make, and in the sense of being able to take account of the views of those others while expressing succinctly, and in a pragmatic manner, the views of the legislature, in a form which will be acceptable to the electorate.


©J.P. Scrafton, 2003

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