The practice of trying to avoid the tax man stretches back to the birth of modern civilization. Whether it was the Roman Empire or ancient Egypt, as long as societies have collected tax people have tried to avoid paying their share. While the principles remain the same, contemporary tax evasion and its implications have become increasingly complex, widespread and far-reaching.
A particular concern is the growing sophistication of tax evasion in the developed world and the similarly audacious blatancy of corporate business operations in developing countries.
Research commissioned by Christian Aid in 2008 estimated the loss to developing countries through two types of common tax dodging alone to be US$160 billion a year, more than developing countries collectively received in foreign aid.
The Organisation for Economic Co-operation and Development’s (OECD) Task Force on Tax and Development convened in South Korea last year to discuss latest developments around tax avoidance and the coordinated efforts being enacted to combat such practices.
The Uniting Church represented the global Tax Justice Network at the meeting, where the focus was on assisting developing countries increase their ability to enforce tax laws and collect tax revenues fairly and effectively.
Dr Mark Zirnsak, Justice and International Mission (JIM) unit director attended the meeting. He said a key concern is large companies rorting tax regulation loopholes.
“A number of developing countries don’t have particular tax-related laws which means they essentially have an open door on tax dodging,” Dr Zirnsak said.
“Companies from wealthy countries can come in and do things they wouldn’t dare try elsewhere.”
The Ugandan Government pointed out that its laws to prevent multinational companies artificially transferring their profits to tax havens only came into effect in July 2011, while Rwanda, Burundi and Tanzania are yet to introduce such laws.
Those campaigning against unethical tax operations note the impact of the super wealthy conducting business in developing countries while putting very little back into often-fragile economies.
Dereje Alemayehu is the chair of the Global Alliance for Tax Justice and chair of the Tax Justice Network Africa and works for Christian Aid. Mr Alemayehu is conscious of the exploitation of Africa by wealthy countries.
He states foreign investment in Africa “…continues, by and large, to be a reproduction of the old colonial practice of creating misery where wealth is extracted and producing riches and glory where it is processed. Lubumbashi [Democratic Republic of Congo] still languishes in its misery and Antwerp shines in its glory.”
“This is not to minimise the damage that corruption is responsible for in Africa. In fact, I am emotionally more outraged by the 10 per cent stolen by the African ruling elite than the 60 per cent illicitly taken out of the continent by investors,” Mr Alemayehu said.
“Tax must be considered as a pillar of any developing economy. It is the only reliable and sustainable resource we have, which, levied appropriately and paid fairly, will engender true financial self-sufficiency.”
Research from 2008 by Christian Aid found developing countries lose close to 160 billion dollars a year from tax dodging.
Global Financial Integrity (GFI) is an organisation that promotes policies and safeguards against illegal cash flows across borders. Its research suggests crime, corruption and tax evasion collectively cost the developing world up to 950 billion dollars in any given year.
Not surprisingly, there are growing calls for wealthy countries to play an active part in ethical taxation reforms.
“In some cases wealthy countries do help combat corruption but in other cases they’re active agents of facilitating, rewarding and benefitting from corruption,” Dr Zirnsak said.
“Companies have an obligation to pay tax in the places they do business because those places provide them with benefits that allow them to operate.
“If you want an educated, healthy workforce then you need to be contributing to the education and health systems in that country.
“If you want decent roads and infrastructure, a corporate system that protects your intellectual property and enforces contracts, then you should be contributing to the government’s ability to deliver that.”
Despite the gloomy news, the Task Force highlighted several positive steps towards addressing the issue of tax avoidance. Developing countries are fighting back against tax dodging by multinational companies and wealthy individuals. In the 2011 – 2012 financial year, the Indian government collected an extra $7.8 billion through 1,343 cases of dealing with tax evasion.
The OECD is also rolling out Tax Inspectors Without Borders, an initiative that will enable serving and former tax officials to work in tax authorities in developing countries on targeted audit-assistance programs.
Developing countries will contribute to the costs of receiving assistance from the experts who will provide on-the-job, tax audit assistance to the officials in the developing country tax authority.
In the Asian region, a number of non-government organisations from the Philippines, Nepal, India, Malaysia and Indonesia have agreed to establish the Global Alliance for Fiscal Justice Asia, to address both tax dodging in our region as well as holding their governments to account for spending tax revenue appropriately. The Uniting Church has offered secretariat support to the Alliance.
Task Force members point out that, while international cooperation and strengthening laws are required to combat tax evasion, the key issue is to challenge perceptions of paying taxes.
“There is growing recognition from businesses – some even like to play up how much tax they do pay,” Dr Zirnsak said.
“On the one hand they say ‘we see our responsibility as returning maximum return to shareholders so reducing tax is part of that’.
“But I think there is a growing movement shining a light on tax dodging practices that helps shift the balance because people realise if they’re exposed as unethical tax dodgers that’s bad for long-term reputation from a shareholder point of view.
“Ultimately we’d like to see a culture shift where people are willing to see tax as a good thing and appreciate that it provides us with essential services,” Dr Zirnsak said.
“It’s always going to be a cat-and-mouse game though.
“Like many other criminal activities there’s always going to be somebody willing to try and beat the system.
“The idea is that the more difficult you make it the less people will do it.
“I think in a way that drives the cultural change – the public attention and the willingness to actually put resources into clamping down on tax dodging will drive change.
“For Australia it’s early days. We’re not as motivated, because we largely avoided the GFC, whereas Europeans suffered a lot more. As a consequence they’re far less tolerant of tax dodging activities by multinational corporations than we are.”
The Uniting Church in Australia, Synod of Victoria and Tasmania, is a member of the Global Alliance for Tax Justice and the Tax Justice Network, as well as serving as the secretariat for the Tax Justice Network in Australia (TJN-Aus). The TJN-Aus is currently made up of 26 organisations, including ActionAid Australia, Australian Education Union, Baptist World Aid, Greenpeace Australia Pacific, Oxfam Australia, UnitedVoice, UnitingWorld, Victorian Trades Hall Council and World Vision Australia.