A Chance for a Global Tax System That Works for All - Not Just the Richest

A just and global solution to the problems of international taxation is required if developing countries are to realise economic self-sufficiency. But if developing countries cannot have a meaningful voice in global tax rules, then they have every justification for going their own way.

In Malawi, the poorest country in the world, the average life expectancy is just 55 years. In a country with high rates of HIV/AIDS infection, hospitals are understaffed and ill-equipped. The small African nation desperately needs money to pay for hospitals, doctors, nurses, teachers and other public services to improve the lives of its people.

Malawi's mineral resources would seem like an obvious source of income for the cash-strapped country, but through a combination of tax avoidance and harmful tax incentives it is deprived of badly needed revenue.

An ActionAid report published last month revealed that the Malawian government lost out on more than $43m in potential tax revenue from a single Australian uranium mining company, Paladin, over six years. That is enough money to pay the salaries of 39,000 teachers or 8,500 doctors for a year.

Malawi is not alone. The IMF estimates that tax avoidance by multinationals may cost developing countries as much as $212bn a year in lost revenue. This doesn't include the huge cost of tax breaks given away by many developing countries which compete with each other to attract multinationals.

This is money that should have been spent on eradicating poverty and helping countries develop. It should be supporting agriculture, tackling hunger and paying for quality public services like healthcare and education.

Tax will be high on the agenda this week when the world's governments meet in Addis Ababa, Ethiopia to agree on how to finance the global fight against poverty for the next 15 years. The meeting offers an opportunity to re-shape the global tax system so that it works for all. Unfortunately, at the moment, many of the world's richest countries are opposing change and refusing to give developing countries an equal say.

Global tax rules are currently determined almost exclusively by the Organisation for Economic Co-operation and Development (OECD), a group of 34 mainly rich countries. The rules and guidelines tend to work in favour of those very countries, and create opportunities for companies to minimise the tax they pay through tax dodging. The rules give a huge advantage to well-funded companies and their tax advisers over the stretched and under-funded tax authorities in poor countries.

The OECD is proposing wide-ranging changes to tax rules around the world to curb tax avoidance. But the recommendations of its Base Erosion and Profit Shifting (BEPS) project are still designed to suit the concerns of rich countries and are often too complicated, too weak or simply not relevant for poor countries like Malawi. This is not surprising as poor countries never got a proper say in the process, even if a select few were consulted at certain points.

The OECD is not willing to take on the unfair distribution of taxing rights between countries. It also refuses to tackle head-on the problem of tax competition that leads countries to give away huge sums in revenue that could otherwise be spent on public services for citizens. Some of the proposals in BEPS are good in principle but limited in practice by the reality that its membership includes some of the world's biggest tax havens.

It's no wonder that the G77 group of developing countries are unhappy. They are pushing hard to be given a say in writing the new global tax rules and are calling for a central role for the United Nations in global tax policy.

Some rich countries, however, have been stubbornly refusing to agree to the UN playing such a role. All they seem willing to offer instead is a little more funding for tax authorities in the poorest countries. But it is simply illogical and unjust for a body controlled by 34 governments to try and set the rules for nearly 200 governments. Nor is it sustainable: China, India and Brazil are already coming up with their own tax rules for multinationals, at odds with the OECD's approach and it is likely that other developing nations will do the same given the lack of coordination.

There needs to be a change of attitude. Rich countries need to see the justice and wisdom in supporting an intergovernmental UN tax body where all governments can be heard and take decisions together to generate broadly-accepted solutions.

A just and global solution to the problems of international taxation is required if developing countries are to realise economic self-sufficiency. But if developing countries cannot have a meaningful voice in global tax rules, then they have every justification for going their own way and, as ActionAid argues in a new report, Levelling Up, finding their own ways to claim their fair share of tax from multinationals.

Close

What's Hot