By Emmanuel Ntirenganya
Corporate tax dodging alone costs poor countries at least $100 billion every year, the money which Oxfam International says is enough to provide an education for 124 million children— who drop out of school annually because of poverty — and prevent the deaths of at least six million children.
Many of the companies and individuals involved in these scandals defend themselves by saying, “but this wasn’t illegal! That’s a big part of the problem, ” Oxfam — an international confederation of 20 NGOs working with partners in over 90 countries to end the injustices that cause poverty.
Indeed, tax dodging is contributing to poverty and inequality among people.
In spite of some attempts to tackle tax havens or tax dodging, the problem continues to exist and cause real damage to society.
Oxfam says that the OECD and the G20 have promoted the “BEPS” tax reforms, and have managed to persuade more than 100 countries to sign on. This process though does little to prevent the use of tax havens, and limits how much poor countries can get out of the process, according to Oxfam.
Base erosion and profit shifting (BEPS) refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations. Under the inclusive framework, over 100 countries and jurisdictions are collaborating to implement the BEPS measures and tackle BEPS, according to the Organisation for Economic Co-operation and Development (OECD). OECD consists of 35 European countries whose mission is to promote policies that will improve the economic and social well-being of people around the world.
Tax haven issue has been exposed by International Consortium of Investigative Journalists (ICIJ) since 2014.
The ICIJ’s most recent investigation is the Paradise Papers, a cross-border, global investigation that reveals the offshore activities of some of the world’s most powerful people and companies, as per Wikipedia, which notes that the project involved 95 media partners and was based on 13.4 million leaked files. The initial release of the investigation data was made on November 5, 2017.
On the same date, Oxfam announced that ParadisePapers exposes feeble political attempts to end tax havens.
“First came #LuxLeaks (Luxembourg Leaks), then #PanamaPapers. Today, reporters all over the world are covering the Paradise Papers, based on leaked documents from yet another offshore tax firm, showing how international corporations and billionaires hide their fortunes and avoid paying taxes,” Oxfam reported on November 5.
Oxfam said that it is campaigning on this at all for one simple reason: the money sitting in these tax havens could be used to fund schools, hospitals, and help people escape poverty.
Proposing a strong global corporate tax system
Speaking speech on October 11, 2017 on “How Much Inequality Can We Live With?, which was one of the topics during International Monetary Fund (IMF) annual meetings for 2017 in Washington DC, Oxfam International Executive Director,Winnie Byanyima said that now it’s time to stop the ultra rich from stashing these trillions of dollars, hiding them from the taxman.
She urged IMF, World Bank and governments to look for an effective and lasting solution to ending tax haven and tax dodging.
“Let’s end the tax dodging by the rich people. Let’s establish a global tax watchdog with the muscle to stop it. That will help to level the game. That will mean we have the resources,” Byanyima observed.
Corporate tax receipts are falling across the world
“TAX BATTLES, The Dangerous Global Race to the Bottom on Corporate Tax,” a report that was released by Oxfam in December 2016, shows that countries across the world are slashing corporate tax bills as they compete for investment.
The average corporate tax rate across G20 countries was 40 percent 25 years ago – today it is less than 30 percent, the report states.
Corporate tax is a tax levied on corporations’ profits. Because corporations are legal entities separate from their owners, they may be taxed as if they were persons. A corporate tax, then, is the equivalent of the income tax for natural persons.
The use of unproductive and wasteful tax incentives is also ballooning – particularly in the developing world. For example, tax incentives cost Kenya $1.1 billion a year – almost double their entire national health budget, the report shows.
Tax incentive is an offer to pay less tax, given to people who do something that the government is trying to encourage; or government’s measure that is intended to encourage individuals and businesses to spend money or to save money by reducing the amount of tax that they have to pay.
But, Oxfam warns that when corporate tax bills are cut, governments balance their books by reducing public spending or by raising taxes such as Value Added Tax (VAT), which fall disproportionately on poor people.
For example, the report revealed that a 0.8 percent cut in corporate tax rates across OECD countries between 2007 and 2014 was partially offset by a 1.5 percent increase in the average standard VAT rate between 2008 and 2015.
Over the last few decades, however, figures show that the tax contributions of large corporations are diminishing as governments compete in a race to the bottom on corporate taxation.
Over the last thirty years, net profits posted by the world’s largest companies more than tripled in real terms, from $2 trillion in 1980 to $7.2 trillion by 2013. This increase, Oxfam points out, has not been matched by a rising trend in corporate income tax contributions, partially because of tax havens.
The report by Oxfam further states that Action Aid had estimated that developing countries lose a further $138 billion due to tax incentives offered by developing countries to large businesses.
Three key ways that Oxfam proposes to End Tax Havens
Here are three things that need to happen to get to the root of the problem, according to Oxfam:
We need a real blacklist, one based on objective, comprehensive criteria, and free from political interference. Listed countries should face stiff penalties.
To end tax secrecy, we need transparency. Governments should make multinational companies report publicly their financial information to see where they do business and where they pay taxes.
They should also establish a publicly-available, centralized register of companies, foundations and trusts, and we should know who their real owners are. This will make it easier to follow the money.
Finally, we need a second round of tax reforms to build on the BEPS process, but this time around, it should work in favor of all countries, and not just the wealthiest.
These changes, Oxfam states, take a lot of time and effort, but most importantly, they take political will.
Otherwise, Oxfam says, the super-rich will keep siphoning billions of dollars away from our homes and into their offshore accounts.
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