Essay: Tax justice at the heart

By Alvin Mosioma

taxMany people regard tax as a complex subject that should be left to experts, but the history of developed economies shows that taxation lies at the heart of any meaningful development and state-building. However, until very recently the international discourse on economic development in poor countries has been devoid of any discussion on tax or tax revenue as a key source of finance. The UN Millennium Development Goals (MDGs) pay absolutely no attention to tax, and neither did the much-lauded Millennium Declaration.

The question of how governments the world over fund schools, hospitals, roads and other vital services is not rocket science. Tax is the only stable, reliable and sustainable source of income that can enable governments to fulfil their obligations to citizens in guaranteeing access to basic essential services. It is therefore vital that a new ‘global partnership for development’ or goal on finance – like the one proposed recently by the High-Level Panel – prioritises taxation as a source of development finance.

Addressing all the challenges and malpractices that deny developing countries their duly owed tax revenue should lie at the heart of the any new global development framework. These efforts should include measures to encourage the generation of tax resources and to curtail revenue leakage from poor countries through flawed global financial systems.

With over 1.3 billion, or nearly one fifth, of the global population living on less than US$1.25 a day, it is a scandal and morally unacceptable that more money is flowing out of poor countries to the rich north, than the other way round. An estimated US$10 flows out of poor countries for every dollar that flows in.

Recent studies indicate that the African continent loses over US$50 billion annually as a result of illicit flows. It is interesting to note that while a lot of focus has been put on fighting corruption, the larger portion of resources lost to the continent is due to corporate malpractice by multinational corporations who take advantage of weak global regulation to dodge paying their rightful share of tax.

It is estimated that US$21 trillion is stashed in offshore accounts in tax havens by wealthy businesspeople and corporations evading or avoiding tax. While the link might not be immediately apparent, lost tax revenue in poor countries is money that could, for example, have gone to save the lives of 150,000 children in Kenya who die each year because they cannot get to hospital in time due to the poor roads, because the hospital did not have the adequate medicine, because the doctor was not available, or simply because the child did not get enough to eat.

ASPIRATIONAL YET PRACTICAL

It is obvious – though not the only factor – that the state’s ability to provide services is directly linked to its ability to generate sufficient resources to cater for such services. As the post-2015 agenda takes shape we should learn from the pitfalls of the MDGs and put measures in place to ensure that the new framework is not just aspirational, but also practical. In this regard I would propose the following recommendations, which I believe could help to close the floodgates that allow resource-leakage and could significantly alter the fortunes of developing countries.

Considering that corporate tax evasion and tax avoidance represents the largest source of illicit flows, we must get global governance right and ensure that corporations pay their fair share of taxes. This should include measures that would make it difficult for these companies to hide under anonymous shell companies by legislating for beneficial ownership – we should know who ultimately owns what, and where.

Additionally, there is a need to encourage an internationally agreed framework on corporate reporting and exchange of tax information. Transparency must apply at a global level, as well as at a national level. Perhaps this is not very easy ‘goal’ territory, but a universal development framework is going to have to tackle complex issues in order to be taken seriously.

Secondly, let’s think about how new Sustainable Development Goals (SDGs) can promote fairer domestic tax systems. In many countries, it is the poor who end up paying more tax as a proportion of their income and this is just not right. When the rich are able to avoid paying their fair share of taxes, a government must rely on the rest of its citizens to fill its coffers.

In Africa, we see a shift towards reliance on value-added tax, which results in price hikes on basic necessities the poor can barely afford, such as food, healthcare and education. A goal or target on income inequality, or an indicator that requires the publication of the direct–indirect tax ratio, might encourage governments in the right direction. It is important to note that while tax dodging goes unchecked, governments are severely hampered from putting in place progressive tax systems – so fairer domestic tax systems depend on global transparency measures.

Thirdly, we should recognise that when implemented fairly, taxation can also be the tool that holds a government accountable to its citizens. A government of the people, by the people, and for the people, can only be realised when the resources that finance development are generated locally and when development is not dependent on external aid.

Ultimately, achieving tax justice should be placed at the heart of the new post-2015 agenda. This means ensuring that the rightful share of tax revenues is kept in countries where meaningful economic activities take place, thus enabling states to finance their own development.

* Anvin Mosioma is director, Tax Justice Network – Africa. TJN- a  is a pan-African initiative and a member of the Global Aliance for Tax Justice. It aims to promote socially just, democratic and progressive taxation systems in Africa. TJN- a advocates for tax systems that are favourable to the poor and that finance public goods. This article is taken from The World We Want to See: Perspectives on Post-2015, A Christian Aid Report, September 2013.

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