The Pursuit Of Tax Justice

Context: The ongoing reporting of Pandora Papers reveals the secrets of “wealthy elites from more than 200 countries and territories” and data about “tax and secrecy havens”.

Issues associated current global financial architecture

• Unethical basis: Overlooking laws, equity and fairness in quest for wealth-maximisation, especially by private sector.
• It endangers human rights, justice, and collective human security: During pandemic, when countries need greater resources to protect public health, the human right to health and equitable healthcare stands, the unequal imbalanced system showed no concern.
  • Eg: An equivalent of over 34 million nurses’ annual salaries is lost to tax havens each year globally!
• Huge quantum of losses: Losses due to “tax abuse” have been estimated by Tax Justice Institute (The State of Tax Justice 2020 report) at $427 billion annually.
  • National losses: Average loss equivalent of 9.2% severely haunts national health budgets.
• Negatively affects impoverished people and nations: Lower-income countries losing much larger equivalent proportions than higher-income countries.
  • Responsibility with higher-income countries: Higher-income countries, are responsible for facilitating 98% of all global tax losses.
• Gaps in domestic tax policies: Promotion of populist policies like exemption from income tax for agriculture, progressive taxation measures, post-arbitration negotiation with Vodafone etc.

Towards revamping global financial architecture: Policy proposal by OECD

• Pillar one – Re-allocation of profits: About 100 biggest and most profitable MNEs to re-allocate part of their profit to the countries where they actually sell their products and provide their services.
• Pillar two – Global minimum tax: Any company with over EUR 750 million of annual revenue would now be subject to an effective minimum rate of 15%.

Prospects of the OECD proposal

• Noble vision: “Tax havens” would “no longer exist” and “international financial services may continue” on “the basis that they add real economic value for their customers and support for commercial transactions that are not tax-driven”.
• Checking unfair practices: Equitable re-allocation of profits would obviate the unfair corporate governance practices, which specialise in tax avoidance and evasion.
• Re-empowering state: As a global minimum tax could “generate around $150 billion in additional global tax revenues per year.”
• Developing countries stands to gain: With “more than $125 billion of profit re-allocated to market jurisdictions, developing countries will stand to gain more than developed countries as a share of corporate income tax”.
• Wider acceptability: OECD policy framework is backed by more than 134 countries and jurisdictions and extending to over 90 per cent of the global economy.

Criticisms against OECD proposal

• Discourages healthy tax competition: Apprehension that the global level of 15 per cent tax on multinational enterprises and corporations, instead of serving as a mere baseline, will eventually become the basic norm.
• Politically biased and opaque process, outside the UN system: The Global Alliance for Tax Justice alleges that OECD proposal does not “address the fundamental problems of the current international tax architecture”.
  • Inherent bias: As OECD is known for promoting trade-related and market-friendly multilateral arrangements that undermine the human rights of the impoverished masses and nations.

Way Forward – A system within UN framework: That is, establishment of a universal, intergovernmental UN tax commission” and “negotiating a UN Tax Convention to comprehensively address tax havens, tax abuse by multinational corporations and other illicit finance…”