In a speech given on the eve of the announcement, Sturgeon said the proposed new tax powers would be used to complement existing powers, which she said had been put into practice to good effect.

The Small Business Bonus Scheme has helped support small businesses in tough financial times; Land and Building Transactions Tax (LBBT) has made the property market more progressive, and Landfill Tax is being increased to encourage recycling, Sturgeon said.

‘Taxation policy is, at heart, inseparable from questions about the sort of society we want to see – the sort of country we want to live in.

‘Our approach to taxation recognises the interdependence of greater equality and higher growth; of encouraging enterprise and promoting fairness,’ she said.

Quoting Adam Smith, Sturgeon said the Scottish government wanted taxes to be ‘certain, convenient, administratively efficient and proportionate to the ability to pay’.

She said that the Scottish government will announce detailed plans on local taxation next week, which will include incentives for councils to boost economic growth by assigning them a share of income tax revenues.

Sturgeon said: ‘That means that if councils succeed in boosting economic growth, and consequently income tax receipts, they will share in some of the benefit. And it also means that local government funding will be more broadly based. Income tax, and a more progressive council tax, will both play an important part.’

Under the new fiscal deal, which took ten rounds of negotiations, funding for Scotland will be at the same level as the Barnett funding set in the recent Spending Review.

The Scottish government will get new borrowing powers, enabling it to invest up to £3bn in infrastructure.  It will also be given £200m to implement the new powers, and the deal is set to be reviewed in the next Parliament.

The funding and borrowing arrangements form part of the Scotland Bill, which is due to pass into law later in the spring.

Chancellor George Osborne said: ‘The arrangements we’ve reached with the Scottish government are fair to Scotland and fair to taxpayers in the rest of the UK.

‘This clears the way for the debate in Scotland to move on to how these tax and spending powers should be used.’

The Scottish Rate of Income Tax (SRIT) comes into force this April and will be set at 10% of the current UK wide income tax rate. All resident Scottish taxpayers will have to pay the new rate through PAYE although the decision to keep the rate in line with UK rates means that taxpayers will not pay an overall increase or decreased rate.

To ensure employers are up to speed with the tax compliance issues complete the CPD module on Scottish Rate of Income Tax