Developing Countries Need Tax Fairness - Not Just Aid

Fair tax policies and the tools to enforce them are as integral to eradicating global poverty as traditional aid, the Executive Director of Canadians for Tax Fairness told a meeting of diplomats and civil society representatives at the United Nations last week.

“International development assistance will continue to be an important source of financing to achieve the Sustainable Development Goals, especially in least developed countries,” Dennis Howlett said. “But for many developing countries taxes are critical to raising the resources for education, health and infrastructure.”

The treasuries of many developing countries have been depleted while multinationals and wealthy individuals shift profits to tax havens, Howlett said.

In the meantime, the United Nations Group of 77 which promotes the interests of the 134 developing countries including China, has called on the UN to upgrade a UN Committee on Tax Matters to a full inter-governmental UN Global Tax Body. The move comes as Ecuador asserts its leadership at the Group of 77. Ecuador had committed to promote “social and economic equality” during its tenure.

Howlett outlined three basic steps in a global takedown of tax havens:

  • First priority is to stop the bleeding – by tackling illicit financial flows and corporate profit shifting that is often facilitated by tax havens. Africa loses up to ten times as much money in illicit financial flows as it receives in aid. 
     
  • Second is to make the tax system fairer –It has been proven that equality spurs economic development. The tax system needs to contribute to development, not only as a vehicle for raising revenue but also a tool for redistribution of income.
     
  • Third is to ensure that revenues raised are directed to public services and social and economic infrastructure investments that advance the Sustainable Development Goals and uphold the economic, social and cultural rights of the people.
     

Howlett said some progress has been made on tackling tax havens in the last few years. This includes an OECD/G20 BEPS project that has produced advances. Country by country reporting and automatic information exchange have been proven tools to help tax authorities determine if multinational corporations are paying their fair share of taxes “But we have not gone far enough and international cooperation in curbing tax havens is in danger of stalling or going backwards,” he warned.
 

The full benefits of these measures will not be available to many medium and smaller developing countries because they don’t have the capacity to effectively use this information.

“This demonstrates the fundamental problem with continuing to rely on a rich country club, the OECD, to determine the global corporate tax rules, without the effective participation of developing countries in the decision making about those rules,” Howlett said.  

That is why it is important to keep pushing for a global tax body under the auspices of the UN. It could take the lead in the fight for transparency and against tax havens.