(Photo: North West Cameroon, Concern Universal 2016)
Due to the influence of the global financial crisis, tax justice has been an increasing issue in the political agenda. Some global companies use tax avoidance strategies, which affect the world’s poorest countries. Tax revenue is very important for developing countries, as it is the most predictable and sustainable source of income for development. Billions lost from developing countries every year for this very same reason. Estimates have shown that developing countries lose more money to multinational businesses avoiding taxes than they receive as development aid.
(Debt and Development Coalition Ireland, 2016)
Tax has been one of the most significant factors in the agenda of development. This article will outline the following issues of tax justice and the influence of tax avoidance on development:
Tax and Development
The connection between taxation and development may not be noticeable at first. However, domestic tax revenue is the most vital source of income that can be used for development. Aid is important in abolishing poverty in these poorer countries and in responding to humanitarian crises. The amount of resources that will be given, the frequency of aid, and the requirement for developing countries to initiate their own development program all depend on the need for the states to identify more predictable and sustainable sources of income. The most efficient source of income is tax. By incorporating effective and continuous tax systems, it will ultimately develop the funds that are necessary for government expenses. This will also encourage the developing countries to stop depending too much on aid and begin to rely on a more sustainable and predictable source of income.(Dóchas, 2011)
Tax and Human Rights
Tax evasion and avoidance have very serious negative effects. They deprive governments of important revenue that should be used to successfully accomplish their human rights commitments, especially their responsibility to continuously fulfil economic and social rights, like the rights to health, education and housing.
Unfair tax policies and unjust practices have encouraged inequalities of all various types and have placed a huge burden on women and others facing systemic discrimination.
Tax regimes that are unexplained and mysterious transactions greatly benefit the economic elites, without the people’s knowledge and participation in crucial decision-making. There are some whistle-blowers who defy this injustice and expose the exploitation of their employer’s abusive tax practices; however these people are often made targets of oppression.
For all these reasons that were mentioned, many within the tax justice and human rights communities are currently acknowledging tax as a significant human rights issue.
(Oxfam International, Liz Nelson, 2016)
As a result of tax injustice, less tax is paid and less money is available to fund public services and support human rights.
These are agreements made between countries that control tax rights, and plays a big role in many tax avoidance schemes. The tax treaties that ActionAid has been investigating to ensure that money flows untaxed from poor to rich countries, making the world more unequal and worsening poverty.
Knowing this, why do developing countries accept tax treaties?
Countries enter into tax treaties for a number of reasons. Developing countries will still negotiate tax treaties often, as this is a method of attracting foreign investment into their country. Providing a clear, transparent and predictable tax environment will facilitate and encourage foreign investment. These foreign investments also serve the purpose of transferring new technology and skills to the developing country, as well as increasing revenue which will lead to a higher economic growth, infrastructure building, increased employment and higher living standards. Tax treaties can avoid fiscal evasion, by helping tax administrations ensure that taxpayers do not escape taxation by moving capital abroad, or by not declaring income earned abroad, or by participating in abusive tax avoidance schemes.
Tax Justice in Ireland – What Has Been Done?
- Irish NGOs (like ElectricAid) are working with local and international partners, developing and authorising research to spread information about their work and express their support for tax justice.
- Certain political bodies and civil society organisations, such as the European Parliament, are attempting to introduce an accounting standard for MNCs that would compel them to present their tax paid and profit made in all of their jurisdictions. This reporting would empower host governments with vital information required to aid in identifying illegal profit shifting by the company.
- Civil society organisations are demanding a universal agreement on the automatic exchange of information between jurisdictions. This is where a mutual agreement is made between all parties involved, to share information on a regular basis guaranteeing transparency so that the poorer countries can start to regain the tax revenue that were lost. Existing bilateral tax information exchange agreements were considered inadequate, they led to the failure of accurately identifying companies and individuals who conceal money in offshore tax havens.
- Grassroots organisations and NGOs worldwide encourage programmes that would provide developing countries with essential skills and administrative capacity to increase taxes efficiently. Permitting developing countries to raise and spend their own taxes will allow them to deliver public services more effectively, promote independence, and create a more attractive environment for future potential investments.
ElectricAid is happy play an aid role to satisfy the basic life of people in the poorest parts of the world. However, it is important that developing countries should not completely rely on foreign aid, should achieve a sustainable solution to poverty, and produce their own revenues with their own ability. ElectricAid and other NGOs will strive to promote and address these important issues in relation to taxation and development through Dochas, United Nations, the European Union and the OECD.
- ActionAid. (2016). Mistreated – The tax treaties that are depriving the world’s poorest countries of vital revenue.
- Debt and Development Coalition Ireland. (2016). What is Tax Justice? http://www.debtireland.org/issues/tax.html
- Dóchas. (2011). Tax Justice for Sustainable Development. http://www.dochas.ie/publications/tax-justice-sustainable-development
- Nelson, L. (2016) Tax Justice is a Human Rights Issue. Oxfam International.
- Pickering, A. (2013). Why Negotiate Tax Treaties. Department of Economic and Social Affairs.