Salmond's economics panel: iScotland could build a modern tax system

Challenges include changing to a new system and the "economic linkages" that would exist with the rest of the UK, said the group in a report on taxation in an independent Scotland.

But overall, the group stressed the opportunities that leaving the UK could bring.

Crawford Beveridge, who chairs the group set up by First Minister Alex Salmond, said they are "clear that the UK tax system is complex and costly, and there is scope for improvement in the current tax system. And with independence, the Scottish Government could introduce a better tax system".

He said: "Improving the tax system could offer Scotland a real competitive advantage and adopting a clear fiscal framework based on robust and responsible analysis and expertise would ensure that Scotland benefits properly from her wealth."

The UK tax system has evolved over hundreds of years to become a "complex landscape of exemptions, deductions and allowances" with an estimated 10,000-plus pages of legislation.

"Alongside reducing complexity, independence would provide Scotland with the opportunity to move towards a less administratively costly and more efficient tax system," the group said.

"Independence would provide a unique opportunity to develop a modern and efficient tax system. If Scotland was to get it right, it could be used as a powerful tool to grow key areas of the economy and tackle long-standing weaknesses. An efficient system could be a major international competitive advantage for Scotland supporting more investment, jobs and growth.

"Establishing such a system will be challenging and should be phased over time. However, the benefits of moving to such a system will undoubtedly pay off in the long-run."

Leaving the UK would give Scotland "an opportunity to examine the tax system as whole, and design a system based on specific Scottish circumstances, preferences and needs".

The group did not consider what particular tax rates, exemptions or allowances an independent Scotland could have, although it recommended that the overall system be based on four principles: simplicity, neutrality, stability and flexibility.

Any new tax system should minimise administration and compliance costs and aim to maximise the tax-take and boost investment and growth.

"A tax system which follows the principles of simplicity, neutrality, stability and flexibility will minimise administration and compliance costs, maximise tax-take and boost investment and growth," the group argued.

Its report states that "any consideration of a new Scottish tax system should also take account of the economic linkages with the rest of the UK and the importance of the ease of paying taxes, not just within Scotland, but across the highly integrated economic area of Scotland and the UK".

While adopting the existing UK set-up post-independence is "one obvious option", this would constitute "a missed opportunity", the report says.

"The UK system has a number of weaknesses that could be reformed, relatively easily, should Scotland become independent."

But implementing a new tax system "will require a careful transition" and that early engagement with the UK Government, and HM Revenue and Customs, on issues such as tax collection "would be to the benefit of both countries".

In a separate report, the group recommended that the Government in an independent Scotland establishes clear fiscal rules governing debt and borrowing, in line with best practice in other countries.

It also suggested the establishment of a Scottish Fiscal Commission, independent of ministers, to help monitor fiscal rules and public finances.

Finance Secretary John Swinney said: "The working group has provided further thorough analysis and I will study their proposals and recommendations for effective financial management and taxation closely.

"This administration has a proud record on managing the public finances of Scotland effectively, and we will of course build on that with the added responsibilities that come with managing all of Scotland's taxes and spending.

"With independence we have opportunities to build on our reputation for fiscal responsibility and put in a place a framework with real credibility, something previous UK governments have failed to do, helping create the financial mess the UK finds itself in today."

Former chancellor Alistair Darling, who leads the Better Together campaign to keep Scotland in the UK, said the report fails to set out what tax bills would be in the event of a Yes vote in next year's referendum.

"This report raises more questions than it answers," Mr Darling said.

"Last week impartial experts confirmed that our taxes would have to go up. The only question is by how much?

"The document says that income tax rates will change in an independent Scotland but the SNP Government is telling us nothing about exactly how much tax we would pay. Until the Nationalists give us an answer to the big question on tax, no one will believe any of the promises they make."

Meanwhile Liberal Democrat leader Willie Rennie claimed there is "a long list of people who will lose their tax reliefs because the SNP puts a premium on simplicity over substance".

One of the members of the working group, Sir Jim Mirrlees, previously called for VAT to be charged on food to make the system simpler, Mr Rennie said.

"VAT on food would cost the average family in Scotland £500 extra every year," Mr Rennie claimed.

"Like so many issues, the SNP face two ways at once. SNP politicians have promised the moon to people, proposing increasing general taxes to pay for new reliefs. Those plans are unequivocally knocked on the head today by this report which is willing to close down the reliefs.

"The film and game industry, and everyone who has been promised a tax exemption here or a relief there, need to know what John Swinney has in store."