Accepted for publication in the International Tax Journal

The Level of Tax Complexity:

A Comparative Analysis between the UK and Turkey
Based on the OTS Index1

Tamer Budak and Simon James*

The hardest thing in the world to understand is income tax.

Albert Einstein, Attributed

Keywords: Tax complexity index; Tax simplificaton, UK tax system, the Turkish tax system, Tax
compliance; Tax policy

Abstract
Tax systems are becoming more complex for many reasons. Some countries such as Australia, New
Zealand (NZ) and UK have attempted to simplify their taxes but with very limited success. One
significant contribution is the Complexity Index developed by the Office of Tax Simplification (OTS)
in UK This paper examines general issues regarding the reasons for complexity, its costs and
consequences and how taxation might be made simpler. It then examines the potential of using an
index like the OTS Complexity Index for making international comparisons by applying it to personal
income tax, corporate income tax, VAT and inheritance tax in Turkey and the UK It finds some
striking differences in the complexity of these taxes in the two countries. Turkey scores better in terms
of policy and legislative complexity whereas UK does better in terms of implementation. This paper
also provides evidence that such indexes identify areas where the level of complexity might be
unnecessarily high. In particular, while the high scores for underlying complexity and resource impact
of income tax in both countries might suggest it is inherently a complex tax, it might also indicate it is
a good focus for attempts at simplification.

1. Introduction
It is over a decade since Picciotto2 considered some of the proposals for “improving tax compliance,
in particular by reducing complexity, improving clarity, and the use of broad principles”. However
such laudable goals appear as difficult to achieve as ever and it is clear that tax simplification is a
more complex issue than many might appreciate. 3 Simplification is a very desirable feature of a tax
system but it is only one of many important considerations involved in the design of tax systems. It
was this fundamental point that, for example, led Freedman 4 to suggest giving the Office of Tax
Simplification (OTS) that particular name begged many questions about the level of complexity
needed to achieve a ‘sensible, reasonably certain, efficient and just tax system’. Indeed the importance
of wider considerations offers some explanation for Sawyer’s conclusion that the work of the OTS
has, at least so far, not led to effective reductions in tax complexity. 5

** Tamer Budak is Associate Professor of Tax Law in the Faculty of Law at the University of Inonu, Turkey and
Visiting Fellow at the University of Exeter Business School. Simon James is Associate Professor in Economics
in the Department of Organisation Studies, University of Exeter Business School UK and a Fellow of the
Chartered Institute of Taxation.
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A further difficulty has been a lack of progress in measuring complexity but here the OTS has made a
useful contribution by developing its Complexity Index. It is a relative rather than an absolute
measure of complexity and was intended to provide an indication of the areas of tax legislation which
are particularly complex and so help prioritise future work of the OTS. Furthermore, the methodology
was intended to assist tax policy makers in UK avoid unnecessary complexity in the future. The
Complexity Index was developed for UK but it is worthwhile exploring the applicability of such an
index for making international comparisons and this paper does so using data from UK and Turkey.
Using these two countries is a particularly relevant way of assessing the applicability of the
Complexity Index in different jurisdictions because, of course, UK and Turkey have different cultural,
language, legal and political backgrounds. The first version of the Complexity Index was published in
December 2012. Following comments a second version 6 was published. A third version was published
in 2015 and the authors of the present study are grateful to have been provided with an advance copy.
Building on earlier work7 this paper first reviews general issues regarding the reasons, costs and
consequences of complexity in taxation and how taxation might be made simpler. It then goes on to
examine the use of the OTS index to compare the level of complexity in Turkey and the UK with
respect to personal income tax, corporate income tax, VAT and inheritance tax. The results of the
comparisons are then reported and some conclusions drawn.

2. Complexity and simplification

Although tax complexity is a frequent topic of debate, the difficulty of defining or measuring what is
meant by complexity is a serious obstacle to tax simplification. 8 Defining ‘complexity’ is not easy.
Most writers avoid defining tax complexity but instead they have listed and categorised some factors
that contribute to complexity. Slemrod lists four main dimensions of tax complexity: predictability,
enforceability, difficulty and manipulability. He also recognises a description of the complexity of a
tax system as the ‘total resource cost’ or the sum of compliance costs and administrative costs
incurred in complying with the system’s requirements. This description thus provides a basic link
between tax complexity and costs of compliance. 9 Enforceability and predictability relate to tax law
whereas manipulability and difficulty refer to taxpayers’ adaptations to tax law. 10 McCaffery11
observes a separation of three main types as between technical, structural and compliance complexity.
Cooper12 points out that tax complexity contains within it the dimensions of predictability,
proportionality, consistency, compliance, administration, coordination and expressionand his
contribution may be seen as a more detailed version of Slemrod’s concept. 13

Tax complexities lead to a significant part of the political debate that is needed for the simplification
of tax systems. However, it is not easy to achieve simplification in a complex socio-economic
environment.14 Also tax simplification has many forms. It is often thought that tax simplification
means changing tax law so that it is easier to read and understand for everyone but this is not enough
to ensure the development of a successful tax system. As indicated above, Cooper 15 has suggested
that there are at least seven issues that should be considered and there are also different levels of
simplification. Cooper’s analysis shows that the idea of simplification is, in fact, very complex and
any successful project would have to be clear about what it is intended to achieve and be undertaken
with care.16

The OTS has considered a range of approaches, such as Cooper’s seven criteria or Adam Smith’s four
criteria (equity, certainty, efficiency and simplicity) for any tax system. 17 One view is that
simplification means reducing the number of taxes and leaving in place only those easier to pay and
collect. It would also be necessary to draft plain and understandable laws, reduce distortions and
harmonise taxes at national or federal and local level. 18 Simplified taxes are beneficial in a number of
ways. They can reduce taxpayers’ burdens of complying with the tax system in terms of time and
money. By reducing these costs, simplification can also reduce the whole burden of taxation.19 At the
same time, a simple tax system increases transparency and reduces number of points of contact
between businesses and tax authorities. Therefore, there are a number of advantages of a simple tax
system and they may be summarised as lower administrative costs, lower compliance costs, fewer
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errors, fewer economic distortions and more transparency and accountability. All of these are
relatively uncontroversial.20

2.1. Complexity: reasons and consequences

There are many reasons why tax systems become more complex. 21 One of the main reasons is related
to the aims of taxation. The main purpose of taxation is to support both fiscal and non-fiscal aims 22
and to raise sufficient revenue to do so effectively 23 however, governments also use tax expenditures,
or concessions, to promote a variety of other aims 24 but these arrangements not only complicate the
tax code but also cost revenue. Politicians and interest groups frequently gain government further
concessions which reduce taxes for particular groups or activities 25 and so complexity may be an
unintended outcome of the political process.

Furthermore, increasing complexity of business transactions leads to increasing complexity in tax

laws. For instance, after the 1950s, business trade changed considerably and this change in the
international economic environment led to tax law being adapted to the taxation of multinational
business transactions.26 As a result of the process, international taxation became one of the reasons for
tax complexity.27

Another factor is the nature of tax law itself which has to adapt to the changing socio-economic
environment in which it operates.28 Tax codes have grown not only in size, but also in complexity, and
it is this steadily increasing complexity that concerns lawyers, accountants, tax administrators, policy
makers and judges.29 Taxation both reflects and affects social, economic, political and cultural life as
well as changes in each of these and as the socio-economic environment becomes more complex so
too does taxation.30

Overall, it is clear there are a many reasons for tax complexity and high rates of tax.31 The costs of
complexity represent a net loss to the economy, because the resources engaged in these activities
could otherwise be put to more highly valued uses. Tax complexity naturally encourages tax
avoidance and it creates some difficulties for honest taxpayers. Complexity causes confusion and
mistakes which often makes it hard to distinguish from dishonesty.32 Tax complexity often
works against particular groups and communal targets. 33 Frequent changes in tax law can
generate uncertainty about the return on a decision in future periods. Complexity also itself
may generate uncertainty because it can prevent comprehension of the meaning of the law. 34

Tax complexity also affects compliance decisions of taxpayers in two ways. First, complex legislation
makes it costly for taxpayers to determine and to comply with their liabilities. Second, complicated
legislation leads to multiple interpretations among the taxpayers. Taxpayers may interpret the same
sentence in the tax code differently. This ambiguity dissuades some eligible taxpayers from making
economically worthwhile decisions while presenting an exploitable opportunity for others. 35 To
summarise, some of the most important consequences of tax complexity are distortions, non-
compliance, compliance costs and legal uncertainty 36 and that it adversely affects economic growth.

2.2. The cost of complexity: tax compliance

The levels of tax complexity and taxpayer compliance costs are significant issues for taxpayers,
governments, and practitioners. 37 Complexity plays an important role in increasing the costs of tax
compliance. Collection and efficiency costs are the two major types of costs associated with raising
tax revenue and efficiency costs are the largest of these. Collection costs comprise government
administration costs38 and the compliance costs incurred by taxpayers in meeting their obligations
under tax assessment Acts. 39 Compliance costs can also be further categorised into mandatory costs
that taxpayers must undergo to meet their legal liabilities and voluntary costs, which refer to

3
additional costs that the taxpayers may choose to determine or minimise their tax liability. 40 Tax
complexity in general gives to rise to higher administrative and compliance costs. 41

In addition, there are also some hidden costs which relate to time, money spent submitting tax forms,
foregone economic growth, lobbying expenditures, and gaps in revenue collection. In the USA, it was
calculated that hidden costs ranged from $215 billion to $987 billion and that the tax codes resulted in
a $452 billion revenue gap in unreported taxes.42

Research by the World Bank shows that globally, companies on average spend over a month each year
complying with tax regulations. This includes nine days for corporate income taxes, 12 days for
labour taxes and contributions and 13 days for consumption taxes. 43 The World Bank also reported
that economic growth appears to be more strongly related to reducing the administrative burden on
business than with lessening tax rates.44

The overall findings from research on tax compliance costs are that they can represent economic
waste for the economy but also that when tax compliance costs are high they fall immoderately on
small business and individual taxpayers.45 Researchers have found that compliance costs were
regressive, hitting lower-income individuals harder than higher-income individuals. 46

Making tax law more user-friendly

‘User-friendly’ tax law is taken to mean it is easy to read, understand and use without the need for
much assistance from the tax authorities or professional tax advisers or both. Such tax law should not
be excessively long and should include a clear structure, appropriate definitions and modern language.

Making tax law user friendly is not an easy process and simplification initiatives and strategies have
to take account of the nature of tax law and language. As mentioned above, they also have to take
account of the environment in with taxation has to operate and the increasing complexity of socio-
economic systems.47 As Prebble put it, complexity arises from trying to fit the law around the ‘natural
facts of economic life’.48

Basically there are two approaches to making tax law more user-friendly. One is the fundamental one
of replacing existing tax law with new re-written legislation and this has been tried in number of
countries. The second approach involves starting with existing legislation which is subject to a
comprehensive analysis including the level of complexity, readability, length of sentences and other
relevant aspects. An economic analysis of tax law and sanctions may be helpful particularly as tax law
has some aspects that are often more pronounced than other legislation..

Economic analysis of tax law may help the process of simplification. Economic analysis of tax rules
and sanctions is technical and includes some econometric analysis. It also requires a different
approach to more general areas of law and economics.49 Yet economic analysis evolves as does the
areas of general law and analysis of taxation so it is an ongoing process. Furthermore, taxation may
affect criminal behaviour and society as a whole in many ways. 50 Some legislation is far from efficient
and imposes unnecessary costs on government and taxpayers so complexity and inefficiency must be
important factors in developing tax policy.

Friendly and simplified law might make greater use of purposive law rather than ‘black letter’ law.
Purposive law involves less detailed legislation and concentrates more on principles. It is therefore
less likely to be described as ‘a continuation of the plague of tax rule madness’. 51 Such an approach
though may involve a loss of precision. In practice, improving the language of tax law seemed to be
the way forward and tax law reviews or rewrite projects were set up in Australia, New Zealand and
UK, each of them establishing specified rewriting teams. These are probably the three best known tax
law rewrite/reviews projects around the world.

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New Zealand`s Rewrite Project employed a novel approach that involved consciously and
systematically modifying the choice and organisation of words within the tax regulations, and
changing the method of expressing legislative dictates. 52 The NZ tax rewrite project ensured some
improvements in readability.53 This is one big impact of legislative simplification, but the NZ tax
system has still complex issues, such as the policy process and underlying concepts. 54

UK Rewrite Project (TLRP) was presented as “an awesome undertaking” in 1995. 55 It was set up with
a similar goal to that of the NZ Rewrite Project.56 The TLRP aimed to reorder legislation by using
modern language and shorter sentences, and providing logical definitions and simple signposting. The
TLRP project involved rewriting 6,000 pages of tax law into plainer English, which was most of the
primary tax legislation for UK. In spite of the fact that there has been much controversy related to
structural reform and decreasing complexity, the only real progress seemed to be greater clarity in
some areas.57 For all that, tax law in UK is still unclear and complex and also lacks simplicity and
clarity.58 The TLRP resulted some improvement in the quality of tax legislation, 59 although it has not
reduced its quantity.

In 1993, the Australian Government set up the Tax Law Improvement Project (TLIP) which was
considered a housekeeping project designed to re-phrase, but not to change, the existing legislation.
Like other countries` initiatives, TLIP contributed to a change in the language and presentation of
law.60 The aim was to rewrite the law with a better structure, make it easier to understand, and make it
more user-friendly.61 However, there has not been a comprehensive analysis of the project to date. 62
The TLIP was completed by the end of 2013; unfortunately, it had not reached its desired targets like
UK and the NZ initiatives but at least there were some considerable improvements. Unfortunately it
cannot be said that any of these three initiatives achieved overall success in simplifying taxation
because they were only concerned with one aspect of the multi-dimensional problem as described, for
example, by Cooper above.

Simplifying tax systems

Simplifying tax systems beyond simplifying the language of tax legislation is not easy. Simple tax
systems may be characterised by low rates applied to a very broad tax base which generally lead to
fewer economic distortions, greater certainty for the taxpayers, lower tax evasion, as well as lower
administrative and compliance costs.63 Although simplifying tax systems is not an easy task there is a
widespread consensus on the desirability of simplicity. However, tax systems in many OECD
countries remain complex. Reducing the complexities of tax system by broadening tax bases through
the reduction in the number of tax exemptions and allowances, authorities might reduce the
opportunities for taxpayers to make filing errors and to avoid and evade taxes. 64

Some studies propose certain principles which might be used to convert a complex system into a
simplier system, for example.65 These principles include the following:

 Make simplification a priority. Simplification must be viewed as a priority tax policy

objective and given substantial consideration in conjunction with the development of
legislation and administrative guidance.
 Seek simplest approaches and strong support. Strong political support in the simplification
process is essential to overcome entrenched interests. Once tax lawmakers have identified
desired tax policy or revenue objectives, the simplest and most transparent approaches to
implementation should be sought.66
 Minimize compliance burdens. Compliance costs, in terms of both time and money, should be
minimized and should be commensurate with the resources and abilities of the affected
taxpayers. Universal exemptions, deductions, or credits are available for most tax systems.67
 Reduce frequency of tax law change. Change in and of itself increases complexity, even if the
change produces long-term simplification.68

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  Use consistent concepts and definitions. Inconsistencies in legal concepts and definitions
should be eliminated in existing law and avoided in the drafting of new laws.
 Simplify filing and record-keeping. Some tax administrations put into practice a sort of
“return-free” tax system, which the taxpayer or the taxpayer’s employer gives a little
information to the tax authorities.
 Consider administrative burdens. The ability of tax agencies to administer, provide guidance
on, and enforce the law must be considered in the development of legislation and
administrative guidance.69
 Avoid limited applicability. Tax rules that apply to a limited number of taxpayers or for only a
short period of time should be avoided.70
 Better align national and local tax rules. Simplification is never be maximized unless
national and local governments can work together to reduce paperwork, streamline the filing
process and create less opportunity for manipulating the tax system. 71

To apply these principles, the tax simplification decision tree (tax guillotine) introduced by Rozner
and Gallagher72 is a kind of review process that can be used.. According to the tax guillotine, each tax
or mandatory contribution must meet four main criteria.

 It must be legal: it is clearly set by law and does not violate any higher-level legislation.
 It must be essential, or policy-driven: It presents a clear purpose, to regulate business activity,
or simply to get revenue for the budget.
 It must be taxpayer-friendly: this depends on factors such as reporting and payment liabilities
should not be troublesome or complex
 It must be cost-effective: assessing whether the benefits of tax justify its cost shows how
effective tool it is for revenue collection, with regard to the cost to taxpayers of paying it.

However any mechanism that introduces new choices for taxpayers as well as differential treatment
designed to encourage one course of action over another will increase complexity. 73 Finally, all studies
agree that complexity has disadvantages for economy, society and also the health of the tax system
and simplification should be an important objective.

3. Measuring tax complexity

Measuring tax complexity is not easy but it is possible. There are several issues relating to the
measurement of the complexity of a tax system 74:

 Constant and temporary costs may differ. A change to the tax system might raise costs
initially but these costs may decrease as taxpayers adapt to the new arrangements.
 Only incremental costs should be included. Even with no taxes, companies would still have to
keep records of income and expenses to calculate their profits and individuals would engage
in financial planning.
 Taxation is only a part of government activity which contains not only spending but also other
regulations. Any tax provision can be made simpler by eliminating it but, if the purpose of
that provision is achieved by changes to a spending programme or other regulations, the total
complexity of government may increase.75

Due to the lack of precise definitions and tools for measuring complexity, it is very difficult to
determine the extent of any progress towards simplification. Treating complexity as a total resource
cost provides a quantitative measurement by which different tax systems can be compared and by
which a specific tax system can be interpreted relative to its impacts on equity, efficiency, and
revenue. There are also some initiatives such as the Progressive Policy Institute’s State Tax
Complexity Index,76 the World Bank/IFC’s Doing Business Project,77 the OTS complexity index78 and
Tran-Nam and Evans’ combination of the axiomatic and statistical approaches related to the
measurement of complexity around the world. 79 Researchers have made some progress in improving

6
methods of calculating complexity in order to make comparative analyses but much remains to be
done.

3.1. The OTS Index

The OTS began its Tax Complexity Project to measure the level of complexity in UK tax system and
developed its Complexity Index. The OTS index is a relative rather than an absolute measure of
complexity and its aim is to provide an indication of which areas of tax legislation are considered to
be particularly complex compared to others and to develop a tool which can help prioritise the future
work of the OTS. The first version of the index was divided into two different parts. The purpose of
the first part was to measure underlying complexity, which indicates the level of intrinsic complexity
found in the structure of the tax system. The second aim was to capture the impact of complexity that
indicates a combination of both the cost of compliance to an individual taxpayer and the aggregated
cost of compliance for all taxpayers. The OTS has developed a map modelled more closely on the
elements of the policy making process and this is illustrated in Figure 1. Complexity in policy and
legislation increases the underlying complexity. Policy, legislation and implementation affect the
impact of complexity and the underlying complexity. 80

Figure 1 How complexity arises within the policy framework

The OTS observed that the policy process itself was critical to addressing the issues of complexity.
Complexity may be minimised if some broad guidelines are followed when designing policy,
legislation, and implementation. Figure 1 indicates that complexity in one part of the system may lead
to complexity in the other parts. The OTS methodology has used 10 dimensions relating to
complexity:

• 6 to measure the underlying complexity

• 4 to measure the impact of complexity

The OTS has planned the development of some general principles to minimise tax complexity in the
future and produced a second version of the Comprehensibility Index. 81 However, the first version of
the index has some of the drawbacks of a weighting formula. The original index aggregates the
complexity factors into two sets of data through a formula, which require weighting each individual
indicator of complexity and then producing a complexity index score out of 10. It encountered a
number of problems:

 It caused many difficulties when calculating the index

 The formula can produce scores above 10, which means that truncation has to be applied to
the final complexity scores
 To take the account of changes in the tax system, the weightings would have to be adjusted
every year to keep each of the indicators in equal value in relation to each other.

The second version of the Complexity Index uses feature scaling as a method to standardize the range
of independent variables or features of data. In data processing, it is also known as data normalization
and is generally performed during the data pre-processing step,82 The simplest method for rescaling
the range of features to make the features independent from each other with an aim to scale the range
between [0, 1] or [−1, 1]. Selecting the target range depends on the nature of the data. The general
formula is given as:
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 Y1 = (Y-Ymin)/(Ymax-Ymin)

‘Y’ is the value of the indicator for a tax measure. ’Y min’ represents an indicator’s lowest value across
all tax measures, while Y max represents the highest. This formula will always produce a score between
0 and 1. Consequently, it removes the need for truncation entirely, gives a much smoother
presentation, and removes the need to adjust the weightings every year. At the same time this formula
gives an opportunity to compare the complexity of taxes across countries, given that the “Y max” is the
highest number for an indicator from each countries’ data. “Y min” is the lowest number. The
aggregation formula is much simpler. A multiplication factor is also included to stretch the index to
give scores between 1 and 10:
[(Y1 + Z1 +… n1)/4]*10
1
Where n represents a normalised indicator, a score of 10 indicates the most complex tax possible and
a score of 0 the least complex. It is noted that the (n/4) * 10 in the last formula is also the scaling
factor in the same way that the division by 50 was in the previous iteration of the index.

3.2. The limitations of the OTS Index

As already indicated, the OTS complexity index is made up of two main complexity indexes. One of
them is the underlying complexity index, which contains policy complexity, legislative complexity,
and operational complexity. The other is the resource impact index that covers average resource cost
and aggregate impact. All data should be objective to allow comparisons between different countries.
However the data of operational complexity regarding `Readability and availability of HMRC
guidance`, and `Complexity of information requirement to make a return` depend on a subjective
rating. The data for ‘guidance complexity’ and ‘complexity of information required to make a return’
are gathered through discussion and consensus between tax professionals. The tax professionals
consist of a mix of individuals from the private sector and HMRC and have experience of a very wide
range of tax and tax policy between them. There are no data and information shared on the HMRC
web page. Consequently the formula ignores them because information from this source is subjective.
Hence, the original formula is altered from [(Y1 + Z1 +… n1)/6]*10 to [(Y1 + Z1 +… n1)/4]*10 to
receive more comparative results.

There is also a consideration about the `administrative costs for tax administration/net revenue
collected`. In Turkey, information about tax administration/net revenue is not collected separately
from taxes such as individual tax and inheritance tax. However, the `Ratio of aggregate tax
administration costs per 100 units of net revenue collection` can be used instead of `administrative
costs for tax administration/net revenue collected` and the general aggregated data will be used for all
taxes.

OTS released the latest version of tax complexity index on June 2015 as a table. 83 The index became
more complex itself. Because the tax system has been broken down into 111 areas, divided by
function such as corporation tax, some taxes such as aggregates levy are presented as a single whole.
It is not easy to understand and does not allow us to develop a comparative analysis between two
countries using this method.

4. Comparative analyses
There are limitations and difficulties in comparing levels of complexity in different countries. Turkey
and UK have many dissimilarities but comparisons may be made where there are at least some
common features in their tax legislation and systems. However, the first task is to clarify the process
of measuring tax complexity.

While it is not easy to undertake a comparative analysis between countries which have different
languages, traditions, cultures, legal systems and are at different stages of economic development it
may be possible to find some common features and comparable data. Tax systems depend on law,
implementation and policy but every country has its own particular characteristics. Consequently all

8
indicators should be objective and accessible to users and researchers and methods have to be devised
to develop indicators that enable meaningful comparisons to be made. In this present study, the OTS
index is used to draw a comparison between Turkish and UK tax systems for personal income tax,
corporate income tax, value added tax and inheritance tax.

Before starting the comparative analysis, it is necessary to convert some data to a scale of 1-5. Each of
the seven criteria used in the OTS index is assigned a score out of 5. For the different criteria, each
number from 1 to 5 represents a specific rating. For example for ‘number of taxpayers’ it defines 1 as
a tax that impacts on less than 10,000 taxpayers; 2 affects 10,000 to 100,000 taxpayers; and it
continues up to 5, which impacts on 10 million and above taxpayers (for example, VAT and income
tax).

The taxes compared are personal income tax, corporate income tax, value added tax and inheritance
tax for UK and Turkey. Data from both countries were collected from the HMRC and the Turkish
Ministry of Finance official site. Only the numbers of income taxpayers of 19 million (with return
plus without return) in Turkey (Kizilot, 2013) are gathered from a different source. Turkey has also
670,980 corporation tax taxpayers, and 2,382,857 VAT taxpayers. Using the OTS methodology the
data from Turkey and UK were generated and are shown at the end of this study in Tables 1 to 6.

4.1. The results with respect to individual taxes

4.1.1. Income tax
Starting with the underlying complexity index, the income tax in Turkey and UK have the same level
of policy complexity, which is 3.33 as shown in Tables 5 and 6. Interestingly, the numbers of
exemptions plus the number of reliefs in UK income tax are five times more than the Turkish income
tax - UK has 291 exemptions plus reliefs (Table 2) but Turkey has only 58 (Table 1). In the period
2000 to 2014, UK income tax legislation has changed 1500 times while Turkey has changed its
equivalent legislation 146 times. However, both countries have the same scores for income tax policy
complexity because the formula described above is a relative and not an absolute one and standardises
the figures taking account of the scores for the four UK and Turkish taxes compared. So although the
income tax in Turkey in an absolute sense is less complex than UK income tax, it has the same score
when the formula takes into account the figures for other Turkish taxes. This is important because it is
a way of taking account the different circumstances relating to taxation in Turkey as compared to UK.
In other words, this analysis suggests that for policy complexity, when the Turkish income tax is
compared to the other Turkish taxes examined in this study it is as relatively complex as UK income
tax is compared to the other UK taxes.

However, legislative complexity gives a different picture between the two countries. Turkey`s income
tax legislative complexity score is 1.66 which is lower than UK`s rate of 2.55. This is mainly the
result of `the number of pages of legislation`. The standardised pages of legislation for the two
countries indicate 101 pages for the Turkish income tax code compared to 696 pages for UK
equivalent for 200784 - halfway through the period of 2000-2014 being examined. İn other words, by
this measure UK income tax code is 6 times longer than the Turkish income tax code. The overall
result for the underlying complexity index is 7.5 for Turkey and the higher figure of 8.83 for UK.

Turning now to the resource impact index, according to `the ratio of aggregate tax administration
costs per 100 units of net revenue collection` which represents the average resource cost, Turkey`s
score is 3.33, while UK`s score is 5. However, when other factors are taken into account the scores for
the resource impact index is that same for income tax in both Turkey and UK at 7.5. The high scores
for underlying complexity and resource impact of income tax in both countries might suggest that
income tax is inherently a complex tax but it might also indicate it is a good focus for attempts at
simplification.

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4.1.2. Corporation tax
For corporation tax, policy complexity is significantly lower in Turkey where Table 5 shows an index
figure of 0.993 compared to UK figure of 1.26 shown in Table 6. There are differences between
numbers of exemptions plus reliefs in the Turkish corporation tax, which has 26, while UK has 120.
There are even more striking differences in the changes to legislation in Turkey and UK. In the period
2000 to 2014. Turkey has changed its corporation tax as 66 times; in contrast, UK has changed its
code 754 times. UK`s corporation tax has been changed around 53 times for per year in these term
which is not always easy for taxpayers to accommodate.

For legislative complexity, UK`s corporation tax has a rate of 3.33, which is three
times more than Turkey’s 1.08 rate. As with income tax, the considerable differences are generally
caused by `the number of pages of legislation`. The Turkish corporation tax code has 39 standardised
pages, in contrast UK`s tax code of 715 pages - 18 times longer than Turkish tax code.
In summary, underlying complexity for corporation tax is relatively low in Turkey. with a score of
3.11 but much higher in UK with a score of UK 6.90. The resource impact indexes for each country
are lower than 1 indicating no important resource impact for corporation tax in either country. This
does not mean there are no improvements to be made regarding resource impact with respect to
corporation tax, rather that the potential gains from improvement are likely to be higher elsewhere.

4.1.3. Value added tax (VAT)

Turkey`s VAT policy complexity rate is 0.87 which is slightly higher than UK`s 0.78. Although there
is only a small gap between the two countries with respect to VAT policy complexity, there have been
considerable differences in changes to VAT legislation for last 14 years. In UK, VAT was changed 854
times from 2000 to 2014, representing around 61 changes per year, while Turkey`s VAT code was
changed 91 times in the same period or 6.5 times per year. When it comes to the numbers of
exemptions plus reliefs, UK`s position is 20 and close to Turkey`s 16.

For the legislative complexity of VAT, Turkey`s index is 1.49, whereas UK`s is 0.24. As with the other
taxes the number of standardised pages of legislation for VAT is much higher in UK at 298 compared
with Turkey at 33. Even so, the legislative complexity index for Turkey is higher than for UK. This
result is related to the readability index and Turkey’s readability score of VAT was calculated as 26,
which is more than double the score of UK.

To sum up for VAT, the underlying complexity of Turkey is 3.53 in comparison with UK at 1.52. At
the same time, the resource impact index of VAT for Turkey is 3.75 whereas the figure for UK is 1.66,
which is less than half that for Turkey VAT is therefore relatively more complex in Turkey than in UK.

4.1.4. Inheritance tax

For inheritance tax, the policy complexity index for Turkey gives a rate of 0.118 which is lower than
UK with 0.423. This result is interesting because there are substantial differences between the two
countries in terms of `the numbers of exemptions plus reliefs`, and `the number of changes to
inheritance tax code`. UK inheritance tax code has 89 exemptions plus reliefs whereas Turkey`s
inheritance tax has only 19 exemptions and reliefs. At the same time, the inheritance tax code of UK
has been changed 279 times since 2000 while Turkey has changed its inheritance tax code merely 10
times at the same period.

When it comes to legislative complexity, there is an enormous difference between the numbers of
pages of tax code. UK inheritance tax code contains 252 standardised pages; in contrast Turkey`s tax
code has only 9 pages. Despite these differences, in terms of inheritance tax policy complexity and
legislative complexity are relatively much less in UK than in Turkey. It may be argued that even if the
tax code is long, it may be less complex.

10
Overall, for inheritance tax the underlying complexity of Turkey is 2.67 and UK 0.64. The resource
impact index is 3.75 for Turkey and 2.55 for UK. It seems clear that inheritance tax is relatively more
complex in Turkey than in UK.

4.1.5. The cumulative complexity for the four taxes

In this final stage, the aggregation formula [(Y 1 + Z1 +… n1)/8]*10 is used to assess the combined
complexity of all the taxes examined in terms of a range of possible scores from 1 (least complex) up
to 10 (most complex). According to the total underlying complexity, there is an important difference
between the two countries. UK score is 8.93 which is higher than Turkey’s score of 8.40 but not by a
great deal and so it is clear both have a high level of underlying complexity.

For the total impact of complexity the score for Turkey is 7.5 but UK has a lower score 6.24.
However, despite these scores, both of countries have a high level of impact complexity. In terms of
both underlying complexity and the total impact of complexity there is significant potential for
simplification in the tax systems of both Turkey and UK.

5. Conclusion and proposals

As already indicated, simplifying the tax system has considerable benefits but it is only one of a range
of important factors that are involved in tax design. In order to function successfully, tax systems
have to achieve acceptable levels of efficiency and fairness together with a reasonable level of
certainty. A failure to take such considerations properly into account helps explain the very limited
success moves to simplify taxation have had in countries such as Australia, New Zealand and UK.
The OTS was established in UK on 20 July 2010 to provide independent advice on options regarding
the existing complexity of the tax system. In contrast, in Turkey, there are no specific projects or an
office primarily concerned with tax simplification. Nevertheless, in Turkey, the tax administration has
declared that tax codes are very complex. For more than ten years, the tax administration has been
using some applications like pre-filled tax returns, e-returns, and a tax helpline to assist taxpayers.
There have been some other changes. İn 2004, the top marginal rate of income tax was reduced for
wages from 49% to 35% and for non-wage income from 45% to 40%. In 2006, the Turkish
government reduced the statutory corporate tax rate from 30% to 20% and simultaneously broadened
the tax base by eliminating the 40% investment allowance. Furthermore, the tax administration has
been set up as a semi-autonomous Revenue Administration (RA) and organized along functional lines
in accordance with best international practice and this constituted an important step towards more
effective tax administration.

Measuring tax complexity is not easy and there are aspects where it is very difficult indeed.
Comparative analyses between countries are even harder, of course, because of differences in culture
and so on and each country has its own approach to measuring tax simplicity. Furthermore, countries
compile their data in different ways which are not necessarily objective. Nevertheless, despite all
these difficulties the current study compared the levels of tax complexity in UK and Turkey and the
exercise yielded some interesting insights.

The two countries have some striking differences in terms of complexity. The number of exemptions
and reliefs in the four taxes examined in Turkey range from 16 to 58 but in UK from 20 to 291. At the
same time, the number of changes to the relevant legislation in Turkey varied between 10 to 146 but
in UK from 279 to 1500. For legislative complexity, on these measures the Turkish taxes were less
complex than their UK equivalents. It may be that the number of exemptions and changes to tax
legislation in UK may be justified in terms of other relevant factors in UK but this comparison
highlights these factors as ones where a degree of simplification might be particularly appropriate.

In terms of the ratio of `aggregate tax administration costs per 100 units of net revenue collection`, a
ratio of 0.93 for Turkey compares favourably with a ratio of 1.14 for UK. UK did relatively better in
terms of the total impact of complexity with a score of 6.24 for all the four taxes compared with a
figure of 7.5 for Turkey. Overall, the application of the OTS Complexity Index to a comparison
11
between Turkey and UK indicates that Turkey scores better in terms of policy and legislative
complexity whereas UK does better in terms of implementation. In both countries income tax is easily
the most complex tax and therefore may have the most potential for simplification measures.

There are limitations to using the OTS tax complexity index to obtain more objective results. Not all
the data are transparently objective including `Readability and availability of HMRC guidance` and
`Complexity of information requirement to make a return` because this information is gathered
through discussion and consensus between some tax professionals. Second, there is also some
uncertainty about `ability of taxpayers`. There are only rates in the relevant HMRC web page and
there may be important further information about how the figures were derived which is not in the
public domain. The analysis above suggests the Complexity Index can be used to produce useful
international comparisons but it would be even better if all indicators were clear and objective. It
would certainly seem to be worthwhile examining the applicability of the OTS Complexity Index
further with a larger study incorporating more countries and focusing on the biggest limitation which
appears to be the objectivity of the data.

Simplifying the tax system is not the only priority and there are trade-offs between tax simplification,
fairness and the government`s other priorities as well as considerations relating to the operation of a
tax system in a complex and changing socioeconomic environment. The question therefore is how to
achieve an appropriate level of simplification given all the other relevant factors. Technological
advances are helping through the development of pre-filled tax returns and a variety of other forms of
taxpayer assistance to avoid them having to deal directly with long and complex tax codes.

An appropriate degree of tax simplification may also be achieved by incorporating it into a more
systematic or strategic process of tax reform taking account of all important factors. A key element in
the development of a strategy is implementation. In terms of a comprehensive approach, an
interactive process plays an important role requiring constant feedback between thought and action
and an appreciation that successful strategies evolve from experience. In terms of tax simplification
the comprehensive process may be summarised in four main areas 85:

 Evaluate the importance of different aims of tax policy.

 Incorporate simplification into the tax policy process itself.
 Develop a ‘simplification culture’.
 Monitor and review progress.

Tax simplification is not the sole aim of tax policy and other aims may change over time so the
process must be a continuing one. Creating a simplification culture is important to maintain and
encourage progess and it is desirable that such a culture should extend to the tax policymaking
process as well.

12
6. Annex
Table 1 Turkey data (2014)
Underlying Complexity Index Resource Impact Index

Taxes Policy Complexity Legislative Complexity Average resource cost Aggregate impact
The
Ratio of aggregate tax
Numbers of Changes to Gunning-
administration costs per Number of Average ability of
exemptions plus the legislation: Fog Pages of Avoidance risk
100 units of net revenue taxpayers taxpayers
number of reliefs (since 2000) readability legislation
collection
index
Personal Income Tax 58 146 20.1 101 2 5 5 5
Corporation Tax 26 66 23.1 39 2 3 3 3
VAT 16 91 26 33 2 4 4 4
Inheritance Tax 19 10 29.4 9 2 3 5 4

Table 2 UK data (2014)

Underlying Complexity Index Resource Impact Index

Taxes Policy Complexity Legislative Complexity Average resource cost Aggregate impact
The
Ratio of aggregate tax
Numbers of Changes to Gunning-
administration costs per Number of Average ability of
exemptions plus the legislation: Fog Pages of Avoidance risk
100 units of net revenue taxpayers taxpayers
number of reliefs (since 2000) readability legislation
collection
index
Personal Income Tax 291 1500 16.9 694 3 5 5 5
Corporation Tax 120 754 20.7 715 3 3 3 3
VAT 20 854 12.1 298 3 3 4 3
Inheritance Tax 89 279 11.72 252 3 2 3 5

In this step, it can apply the standardisation formula formula of Y1 = (Y-Y min)/(Ymax-Ymin) to scales each of the countries` indicators into a number between 0 and 1. Those
indicators are below:

13
 Table 3 Standardized indicators for Turkey
Underlying Complexity Index Resource Impact Index
Policy Complexity Legislative Complexity Average resource cost Aggregate impact
Taxes
Numbers of exemptions Changes to The Gunning- Administrative costs for tax Average
Number of Avoidance
plus the number of legislation(sinc Fog readability Ppages of administration/net revenue ability of
taxpayers risk
reliefs e 2000) index legislation collected taxpayers
Personal Income Tax Y1 = 1 Y2= 1 Y3= 0 Y4= 1 Y5= 0 Y6= 1 Y 7= 1 Y8=1
Corporation Tax 1
X = 0.238 2
X = 0.358 3
X = 0.322 4
X = 0.326 5
X=0 X=06
X=07
X8= 0
VAT Z1= 0 Z2= 0.519 Z3= 0.634 Z4= 0.260 Z5= 0 Z6= 0.5 Z7= 0.5 Z8= 0.5
Inheritance Tax 1
T = 0.071 T=0 2
T=1 3
T=04 5
T=0 T=06
T=17
T8= 0.5

Table 4 Standardized indicators for UK

Underlying Complexity Index Resource Impact Index
Policy Complexity Legislative Complexity Average resource cost Aggregate impact
Taxes Numbers of exemptions Changes to The Gunning- Administrative costs for tax Average
Number of Avoidance
plus the number of legislation: Fog readability Pages of administration/net revenue ability of
taxpayers risk
reliefs (since 2000) index legislation collected taxpayers
Personnel Income Tax Y1= 1 Y2= 1 Y3= 0.576 Y4= 0.954 Y5= 0 Y6= 1 Y 7= 1 Y8= 1
Corporation Tax X1= 0.369 X2= 0.389 X3= 1 X4= 1 X5= 0 X6= 0.333 X 7= 0 X8= 0
VAT Z=01 2
Z = 0.470 3
Z = 0.042 4
Z = 0.099 5
Z=0 6
Z =0.333 7
Z = 0.333 Z8= 0
Inheritance Tax T1= 0.254 T2= 0 T3= 0 T4= 0 T5= 0 T6= 0 T 7= 0 T8= 1

In this step, applying the aggregation formula ((Y1 + Z1 +… n1)/4)*10 to find index for each taxes to give us scores between 1 and 10

14
 Table 5 Indexes for Turkey
Income Total Underlying
Corporation Tax VAT Inheritance Tax
Tax Complexity

1- Numbers of exemptions plus the

number of reliefs
2- The number of Finance Acts with Policy
3.33 0.993 0.865 0.118
changes to the area (since 2000) Complexity

3- The Gunning-Fog readability 8.40

index Legislative
1.66 1.08 1.49 1.66
4- Number of pages of legislation Complexity
Total Impact of
Underlying Complexity Index 7.5 3.11 3.53 2.67
Complexity
5- Administrative costs for tax
Average
administration/ net revenue
resource cost 3.33 3.33 3.33 3.33
collected

6- Number of taxpayers
7- Average ability of taxpayers Aggregate
5 0 2.5 2.5
8- Avoidance risk impact
7.5

Resource Impact Index 7.5 0 3.75 3.75

Table 6: Indexes for the UK

Income Total Underlying
Corporation Tax VAT Inheritance Tax
Tax Complexity1

1- Numbers of exemptions plus the

number of reliefs
2- The number of Finance Acts with Policy
changes to the area (since 2000) Complexity 3.33 1.263 0.783 0.423

8.93
3- The Gunning-Fog readability
index Legislative
2.55 3.33 0.235 0
4- Number of pages of legislation Complexity

Total Impact of
Underlying Complexity Index 8.825 6.895 1.5275 0.635
Complexity
5- Administrative costs for tax
administration/net revenue Average 5 5
5 5
collected resource cost

6- Number of taxpayers
7- Average ability of taxpayers Aggregate
1.8 0.555 1.11 1.66
8- Avoidance risk impact 6.24

Resource Impact Index 7.5 0.8325 1.665 2.5

1 The aggregation formula [(Y1 + Z1 +… n1)/8]*10 to find index for total taxes scores between 1 and 10.
15
Endnotes

16
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