Rooting out tax dodgers who rob nations
15 June 2015
Posted by: Author: John Stremlau
Author: John Stremlau (BDlive)
No one likes paying taxes and many are quick to criticise elected officials for how they spend our money, especially if evidence suggests flagrant waste and fraud.
Public demands for greater transparency and accountability in how governments use taxpayer money are accelerating, not only in SA and other democracies but countries still autocratic in Africa, Asia and the Middle East, as citizens gain access to IT and social networks.
Far less evident are the complementary demands from taxpayers and governments for companies and extremely rich individuals who avoid vast amounts of badly needed lawful taxation every year.
Two recent events in Johannesburg may be harbingers of a growing awareness that the tax-avoidance tactics of the rich and powerful could face rising public demands for reducing extreme inequalities by greater transparency in monitoring and enforcing tax policies.
The Wits Institute of Social and Economic Research hosted a lively public debate on the relevance for SA of Thomas Piketty’s global bestseller, Capital in the Twenty-First Century, sparked by a critical review from Vishnu Padayachee of the Wits Business School.
There was broad agreement with Piketty’s case that rampant inegalitarian capitalism threatens Western democracy and prosperity, with even more dire implications for SA if current inequalities persist. Neither Piketty nor South Africans offer politically realistic policy prescriptions beyond the vital first step of requiring and enforcing more transparent accounting and reporting of all income earned.
This same call for greater financial transparency, especially by corporations and the very rich, also came at an international gathering in Parktown of financial and human rights experts organised by the US-based Global Financial Integrity (GFI) in partnership with the International Bar Association’s Human Rights Institute and Germany’s Friedrich-Ebert-Stiftung.
For the past decade, teams of GFI financial experts have been analysing discrepancies in balance of payments data and the direction of trade statistics as reported to the International Monetary Fund by all member countries, in order to detect flows of capital that are illegally earned, transferred and/or used.
Its rough estimate is that as much as $1-trillion a year flows illegally out of developing and emerging economies due to tax evasion, corruption and crime, exceeding the combined foreign aid and investment to these countries, depriving governments of vital capital and the majority of their citizens of many basic social and economic human rights.
Multinational corporations operating in developing countries allegedly reduce their tax burden significantly, typically by creating additional subsidiaries in tax havens and then having their poor-country subsidiaries contract with their tax-haven subsidiaries into arrangements that diminish the taxed profits of the former while increasing the untaxed profits of the latter.
US and European governments are starting to take steps to bring these abuses to light and to collect the taxes due. On this, greater north-south co-operation should be of clear mutual interest, especially if backed by citizen pressure for greater global financial transparency regarding shell companies and anonymous accounts, automatic exchange of tax information worldwide, and the requirement that, in their audited annual reports and tax returns, multinational corporations report their sales, profits and taxes paid country by country for each jurisdiction in which they operate.
Adding such targets to the soon-to-be approved United Nations Sustainable Development Goals might at least open the door for policy reforms that are essential to curbing illicit financial flows which, by draining less developed countries of capital and tax revenue, are a great impediment to sustainable development.
This article first appeared on bdlive.co.za.