UNCTAD Trade and Development Report 2012

UNCTAD Trade and Development Report 2012

UNCTAD (United Nations Conference on Trade and Development) has just published a new study that is relevant for tax justice. The report argues that reducing inequality is central for growth and development. Among the issues they discuss are progressive taxation as a means of reducing inequalities and spurring economic growth.

The whole report and summary can be found here: http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=210

Interesting Excerpts

Firstly, they point out how progressive taxation is important for reducing inequality and spurring growth - especially in developing countries:

"Suitably designed reforms

of direct taxation can simultaneously achieve the goals of lowering income inequality and boosting growth of output and employment creation in developed and developing countries alike. The low degree of progressivity in developing and transition economies’ tax systems and the large differences between regions and countries in this regard suggest that in many of these countries there is considerable scope for tackling income inequality effectively through more progressive taxation." (p.132)

Secondly, they note with concern that the trend in tax reforms in developing and developed countries has been towards less progressive taxation:

"In many countries, market-friendly tax reforms reduced the tax-to-GDP ratio, lowered marginal tax rates and served to strengthen those elements of the public revenue system that had regressive effects on income distribution (i.e. elements which tended to increase income inequality). This new orientation also shaped fiscal policies in developing countries, where policy reforms in the 1980s and 1990s were strongly influenced by the conditionalities and recommendations of the international financial institutions"

(p.114)

Thirdly, the report also discusses the problem of tax avoidance by the rich and multinational companies and the role it plays in increasing inequality (while referencing a TJN study - underlined below):

"...in most of those

developing countries where income distribution is highly unequal, taxation is also regressive, and tax evasion by earners of non-wage incomes is widespread. This contributes to even greater inequality because richer people have greater opportunities and skills for evading taxes. According to estimates from Tax Justice Network (2011), tax evasion or avoidance reduces tax revenues by $3.1 trillion worldwide every year. Similarly, transfer pricing – which refers to the setting of prices in international transactions between associated enterprises within a TNC – enables the shifting of TNCs’ profits to low- or no-tax jurisdictions, and thus unfairly deprives a country of tax revenues" (p.120)

Lastly, this is from the conclusion of one of the chapters:

"In conclusion, a progressive income tax, income transfers of various kinds to low-income groups and improved access to education and skills acquisition may contribute to correcting inequality in the distribution of incomes. At the same time, these measures can support domestic demand and boost growth and employment creation in the economy as a whole." (p.135)

They do, however, also note some limitations on relying on progressive taxation and income transfers alone:

"However, there are limits to achieving greater equality in personal income distribution in this way.

A comprehensive policy approach to reversing the trend towards greater inequality will require a broader reorientation of economic policy that takes into account the dynamics linking productive investment, growth and income distribution, which are influenced by labour market and macroeconomic policies." (p.135)

The whole report and summary can be found here: http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=210http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=210

A Research Report on Good Tax Governance in Africa

A Research Report on Good Tax Governance in Africa

24 August 2012 African Tax Administration Forum (ATAF) How countries approach taxation has a direct impact on their economic growth and development. Taxation is key to a government’s ability to deliver essential services to their citizens and making long-term investments in public goods. The systems of taxation are therefore able to contribute significantly to shaping state-citizen relationships, strengthening state capacities, and contributing to better governance and accountability. This research paper complements other recent research in suggesting that improving the process of taxation can lead to building capable tax administrations as well as play a significant role in promoting accountability. With its focus on Africa, this research project on the Good Financial Governance in Africa identifies the key trends in tax governance on the continent, elaborating on the renewed interest in taxation, the reforms underway in tax administration and organisational structure, the consequences of unstable tax revenues, and the nexus between taxation and good governance. The research was commissioned by the African Tax Administration Forum (ATAF) and forms part of a joint research project on a Status Report on Good Financial Governance in Africa, published in March 2011. The joint work was undertaken with the African Organisation of Supreme Audit Institutions (AFROSAI) and the Collaborative Africa Budget Reform Initiative (CABRI), respectively three professional networks of tax administrators, supreme audit institutions and senior budget and planning officials in Africa. While the main outcomes of the research on the tax aspects are contained in the Status Report on Good Financial Governance in Africa, we found it important to also separately publish the full research on Good Tax Governance. As with the broader research on Good Financial Governance, the research approach and framework for the project was developed jointly by the three networks at a technical workshop in March 2010, and the preliminary research findings discussed and validated at a second technical workshop in July 2010. The findings of this research are thus based on primary and secondary research, including surveys, literature reviews and analysis of primary country data. Download the report here. http://www.ataftax.net/e-resource-centre/publications/a-research-report-on-good-tax-governance-in-africa.aspx http://www.ataftax.net/e-resource-centre/publications/a-research-report-on-good-tax-governance-in-africa.aspx

Research Briefing: Secrecy Jurisdictions

Research Briefing: Secrecy Jurisdictions http://www.taxresearch.org.uk/Documents/Secrecyjurisdiction.pdfhttp://www.taxresearch.org.uk/Documents/Secrecyjurisdiction.pdf


Secrecy jurisdictions
We use the term secrecy jurisdiction to describe places that are popularly called tax havens.
The places in question would prefer that they were called offshore financial centres or
international financial centres. The difficulty with the terms tax haven, offshore financial
centre and international financial centre is that no one has ever been able to define what
they mean by these terms, so we created the alternative, and more accurate description
‘secrecy jurisdiction’.


What is a secrecy jurisdiction?
The definition of a secrecy jurisdiction is in three parts. This reflects the complexity of what
they do.
Firstly, secrecy jurisdictions are places that intentionally create regulation for the primary
benefit and use of those not resident in their geographical domain.
This is important. To be a secrecy jurisdiction a place must deliberately create law that can
be used by people who are not resident in its own territory. Or, to put it another way, it
must deliberately create laws that wholly or mainly relates to activities that take place
‘elsewhere’ as far as it is concerned.
Secondly, we say secrecy jurisdictions deliberately design the regulation they create for use
by people who do not live in their territories so that it undermines the legislation or
regulation of another jurisdiction.
Again, we think this important because. It’s one thing to create laws that help people who
are not resident in your country. As a matter of fact many countries will do that, to
encourage tourism for example. The difference this part of the definition suggests is that this
legislation has what we would consider malicious intent: it is designed to undermine the rule
of law in another country. That is a serious allegation to make.
Thirdly, we argue that to assist those from other places who want to make use of the laws
that a secrecy jurisdiction provides those secrecy jurisdictions also create a deliberate, legally
backed veil of secrecy that ensures that those from outside the jurisdiction making use of its
regulation cannot be identified to be doing so.
This last point is no minor issue: by suggesting this we are saying that secrecy jurisdictions
knowingly assist people from outside their domains break the law in the places where they
live and make it as hard as possible for that law breaking to be discovered. As such we are
suggesting that those secrecy jurisdictions are complicit in the law breaking process.
It must be stressed that to be a secrecy jurisdiction all three of these characteristics must be
present but that of the three the most important is the last. If a place created laws for the benefit of those living in other places which undermined the laws of those other places but
did not also provide a veil of legally backed secrecy then no one would make use of those
laws because their guilt would be readily transparent. As such it is obvious that secrecy is key
to what secrecy jurisdictions do – hence the name.


Why are secrecy jurisdictions important?
Secrecy jurisdictions are important for these reasons;
1. The secrecy they provide facilitates all manner of illicit financial flows. Illicit financial
flows include those relating to:
a. The proceeds of crime, including theft, fraud, racketeering, drug dealing,
human trafficking and insider dealing;
b. Piracy;
c. Counterfeiting;
d. Corruption;
e. Tax evasion;
f. and much more.
As a result secrecy jurisdictions undermine the rule of law and as such threaten the
stability of the world;
2. Secrecy jurisdictions undermine free trade by firstly assisting illicit trade and
secondly by creating opacity which prevents the best allocation of the world’s
economic resources to productive activity, so reducing world income;
3. Secrecy jurisdictions undermine democracy by seeking to force down the tax rates
levied by democratically elected governments. The ballot box is the proper place for
these rates to be chosen;
4. Secrecy jurisdictions create opacity, and so mistrust and this increases risk in the
world to the disadvantage of all.


What we think about secrecy jurisdictions
Transparency is the basis of effective markets. We define transparency as existing when the
following information is readily available to all who might need it to appraise transactions
they or others might undertake or have undertaken with another natural or legal person:
1. Who that other person is;
2. Where the person is;
3. What right the person has to enter into a transaction;
4. What capacity the person has to enter into a transaction;
And with regard to entities that are not natural persons:
5. What the nature of the entity is;
6. On whose behalf the entity is managed;



7. Who manages the entity;
8. The scale of transactions the entity has entered into;
9. A clear indication of where the entity has entered into those transactions;
10. An understanding of who has actually benefited from the transactions;
11. Whether all reasonable obligations arising from the transactions are likely to have
been properly fulfilled.

Secrecy jurisdictions deliberately make it very hard or impossible to determine any of these
issues. As such they create opacity, and not transparency.
Transparency provides the following benefits:
1. The confidence needed to transact with another person within any state, and as
importantly, between states. Since trade is fundamental to human well being
transparency increases that well being for everyone;
2. Confidence in the rule of law;
3. Confidence in democratic processes;
4. Confidence that people – whether individuals or legal entities - are tax compliant
where tax compliance is defined as seeking to pay the right amount of tax (but no
more) in the right place at the right time where right means that the economic
substance of the transactions undertaken coincides with the place and form in which
they are reported for taxation purposes.
5. Confidence that these who transgress will be held to account.
This confidence improves the quality of life for everyone. It follows that secrecy jurisdictions,
by promoting opacity, do the exact opposite.

What we are doing about secrecy jurisdictions
We are tackling secrecy jurisdiction practices in a number of ways:
1. We’re tackling them head on! In our blogs we challenge secrecy jurisdictions to be
accountable almost day in, day out. See, for example, www.taxresearch.org.uk/blog;
2. By promoting changes in domestic and international tax and regulatory systems that
will increase transparency and reduce the impact of the opacity that secrecy
jurisdictions create;
3. One such campaign is for country-by-country reporting within the accounts of
multinational corporations – which would reveal what they do in secrecy
jurisdictions. No one can find this out at present. See
www.taxresearch.org.uk/Documents/CBC.pdf and
http://www.taxresearch.org.uk/Documents/BenefitsofCBC.pdf;
4. We also campaign for automatic information exchange with secrecy jurisdictions –
so that they have to report to other states the income that is hidden in secrecySecrecy Jurisdictions
4
jurisdiction bank accounts. See www.financialtaskforce.org/issues/automatic-tax-
information-exchange/;
5. And we campaign for disclosure of the beneficial ownership of all companies, trusts,
charities and foundations wherever they are in the world. See
www.financialtaskforce.org/issues/beneficial-ownership/.
What we can say, without a doubt, is that this activity is having an impact. Without this work
the whole focus on secrecy jurisdictions that has become so commonplace in the world’s
press in the last year or so would not have happened.

Where you can learn more
A great deal of information about secrecy jurisdictions, what they are, what they do and
what their impact is can be found on the www.secrecyjurisdictions.com web site that Tax
Research UK helped research.
This in turn was used to help create the Financial Secrecy Index
www.financialsecrecyindex.com which the Tax Justice Network and Christian Aid sponsored.
The Tax Justice Network website is a mine of information on campaigning issues related to
secrecy jurisdictions www.taxjustice.net
The web site of Global Financial Integrity is important on the issue of tackling illicit financial
flows. www.gfip.org
The Task Force on Financial Integrity and Economic Development
www.financialtaskforce.org also addresses these issues.
Individually and together these resources and the organisations that sponsor them spearhead
the worldwide campaign against secrecy jurisdictions in the Tax Research UK also plays a
part. www.taxresearch.org.uk/blog

Contact information
www.taxresearch.org.uk/blog
richard.murphy@taxresearch.org.uk
+44 (0) 1366 383 500

Publisher information
© Tax Research LLP September 2010
The Old Orchard, Bexwell Road, Downham Market, Norfolk PE38 9LJ
United Kingdom
Registered at the above address. Registered number OC316294

Tax Briefing; Foundations of Tax Justice

Tax Briefing; Foundations of Tax Justice:

 It includes the 5 r's of Taxing, the 10 C's of a good tax system, The 6 Steps of tax Justice and the 11 Steps to Financial Transparency http://www.taxresearch.org.uk/Documents/Foundations.pdfhttp://www.taxresearch.org.uk/Documents/Foundations.pdf

Building a Fair, Transparent and Inclusive Tax System in Sierra Leone

http://taxjusticeafrica.net/content/building-fair-transparent-and-inclusive-tax-system-sierra-leone

Building a Fair, Transparent and Inclusive Tax System in Sierra Leone

Introduction 

Building an effective tax system is among the most pressing challenges facing any state, as taxation provides the resources necessary to finance government activities and has equally important implications for economic growth, inequality and governance. 

Despite this reality, tax debates have tended to remain the preserve of a narrow, technocratic elite, while 

broader, popular engagement has remained very limited. This report provides an overview of the political 

economy of the tax system in Sierra Leone in order to support more extensive and informed public debate 

and advocacy around tax issues. It draws on a combination of official data, published sources and, most 

importantly, a wide array of interviews conducted with policy makers and other stakeholders in June–July 

2010 (see Appendix 1). Debate about tax issues has tended to focus overwhelmingly on generating additional revenue in a way that is also supportive of economic growth. This is a hugely important goal, but it is equally important to focus on building tax systems that are fair, transparent and inclusive. These goals are important in order to encourage broader development gains, and because they are essential to enhancing tax compliance and the legitimacy of the tax system.Sierra Leone faces particularly acute challenges in pursuing this goal. Not only were the economy and tax administration devastated by the civil war during the 1990s,but even prior to the civil war the tax system in Sierra Leone was among the weakest in the world. 

Against this background, significant progress has been made over the past decade, as the government 

has implemented substantial policy and administrative reforms. However, levels of tax collection remain low 

relative to other countries in the region, and below levels achieved by similar post-conflict countries (Table1). While only very limited research exists on the specifics of these different cases, it is important to note that all four countries in Table 1 have pursued similar trajectories of policy and administrative reform. As such, weaker than expected performance in Sierra Leone appears to be explained by the politicisation, and limited effectiveness, of implementation, particularly since 2004-2005. This message is reinforced by the disconcerting fact that the past five years have witnessed stagnation and even decline in revenue collection as a share of gross domestic product (GDP), reflecting the persistence of corruption, politicisation and poor tax 

enforcement among elites. There is thus an urgent need for public pressure for reform.

Table 1 : Tax as a percentage of GDP in Sierra Leone and other low-income, post-conflict countries

Region  2004 2005

Sierra Leone 11.2% 9.88%

Liberia 12.9% 13.2%

Mozambique 11.3% 10.8%

Ethiopia 11.6% 10.8%

Source: Data from assorted International Monetary Fund (IMF) 

Statistical Appendices.

The remainder of this report is structured as follows. 

Chapter 2 provides an overview of why taxation matters for development outcomes. Chapter 3 explores 

the history of taxation in the country in order to set the social, political and economic context for current 

reform efforts. Chapters 4 to 6 then turn to analysing the political economy of the contemporary tax system, 

focusing, in turn, on central government taxation, local government taxation and minerals taxation. Finally, Chapter 7 presents a series of recommendations for civil society advocacy and engagement. While the 

report presents detailed technical information about the tax system, it is focused on capturing the broad 

political economy of taxation, as political factors hold the key to building a fair, transparent and inclusive tax 

system moving forward.

Taxation and Development in Ghana: Finance, Equity and Accountability

Taxation  plays an important role in shaping the distribution of benefits, as it is the basis for redistribution from those with the highest incomes to those most in need, and allows government to encourage certain activities and discourage others by altering their
relative prices.

What is less frequently noted is the broader centrality of taxation to good governance, which encompasses the capacity, responsiveness and accountability of government. In the realm of capacity, taxation lies at the administrative heart of government and provides the foundation for the provision of public goods and the implementation of effective regulation. As importantly, taxation is the venue through which citizens are most intimately connected to the state and can be an important catalyst for public demands for responsiveness and accountability.

Despite this fact, attention to the issue of taxation in the developing world has been sorely lacking and generally limited to technocratic policy and administrative reforms. Public participation in debates about taxation has been particularly rare despite major issues of public interest related to tax system equity, tax avoidance and evasion and the broader drive for improved governance. This research forms part of a broader civil society effort to expand pubic participation in debates about taxation, and to correspondingly improve development outcomes.

The paper begins with a brief introduction to the economic, social and political context in Ghana, and this is followed by a detailed overview of the existing tax system and its limitations. The third section looks at tax avoidance and evasion in various forms in order to identify ways to both increase collection and improve equity. The fourth section looks at the relationship between taxation and the development of political responsiveness and accountability, focusing on the ways that taxation can become a catalyst for public demands for improved governance. The final section concludes and provides a set of recommendations for potential campaign targets and further research

Tax Us If You Can: Why Africa Should Stand Up for Tax Justice

Tax Us If You Can: Why Africa Should Stand Up for Tax Justice
Introduction
Tax is the foundation of all civilisations. The act of tracing tax policies and practices reveals the history of the
relationship between the ruler and the ruled, state and citizen.In Africa this relationship can be traced back over millennia. For instance, Egypt’s famed Rosetta Stone, created in 196 BC during the Ptolemaic era, was an agreement granting a tax exemption to priests, and certain reductions to the military and other ruling classes, including traders approved by the king.  it was an early example of the special privileges that continue to proliferate across the continent.Today, 80 per cent of Africa’s exports consist of primary commodities. African governments depend heavily on the resource rents from these commodities but many are exempt from taxation. Tax holidays and other hidden subsidies granted to multinationals in secretive
agreements deprive governments and their citizens of significant tax revenues.Similar exemptions to those that once governed trade along the Anu canal in ancient  Egypt continue today as foreign traders set up shop in the various  Free Zones along Africa’s coastlines where little or no tax is due, or Special Economic Zones (SEZ's) and International Financial Centres (IFC's) along the trade routes that cross the continent.

Tax injustices in Africa prevail for a number of reasons. Key among these are the world’s secrecy jurisdictions which provide services with high levels of confidentiality to facilitate hiding taxable incomes and to shelter criminal activities. It is not without irony then that the Rosetta Stone is housed in London, which is linked to more than a quarter of the world’s secrecy jurisdictions. (Secrecy jurisdictions are defined as places that intentionally create regulation for the primary benefit and use of those not resident in their geographical domain. That regulation is designed to undermine the legislation or regulation of another jurisdiction. See section 3.5) This report aims to help readers understand the issues behind Africa’s struggle for tax justice.

 In Section 1, the report begins by exploring the meaning of  tax justice in the African context before examining some of the main channels for tax leakage from the continent and the impact of these leakages in terms of government revenues.

 Section 2 sets out the key systemic causes of tax injustice in Africa, explaining firstly how decades of selective development or ‘maldevelopment’ in resource-rich states has left government funds depleted and many countries susceptible to conflict. The section goes on to examine the policies that have contributed to making taxes in Africa regressive, and
ends by looking at problems around ineffective tax and customs administrations.

Section 3 presents a ‘who’s who’ of  tax injustice in Africa. The tax avoidance industry is always keen to make a clear distinction between   tax evasion, which is illegal in most countries, and tax avoidance, which usually involves exploiting legal loopholes. This section looks at some of the key players involved in exploiting such loopholes: accountants, lawyers, bankers,  multinational companies and, crucially, secrecy jurisdictions.  It also examines the role of governments, parliaments and taxpayers, and asks what all stakeholders should be doing to help achieve tax justice.

Section 4 discusses how multilateral agencies, such as the World Bank and the International Monetary Fund (IMF), have influenced tax policy in Africa.  it shows how the ‘tax consensus’ promoted by these organisations has led to a reduction in government revenues in many countries. it then looks at some of the international organisations trying to tackle various aspects of tax injustice, particularly the United Nations and the Organisation for Economic Cooperation and Development (OECD), and discusses the role of a range of
African organisations and the growing contribution of civil society.

Section 5 emphasises the importance of taxation for Africa’s future and explores a series of options to help achieve tax justice. Key among these will be: raising awareness around tax issues and promoting a culture of tax compliance; increasing tax transparency among governments and  multinational companies; increasing international cooperation on tax matters; and enhancing international assistance to help African governments improve their tax affairs. Finally, a glossary of tax terms is provided to help readers understand some of the technical terminology around taxation. Tax revenues are necessary for any state to meet the basic needs of its citizens. In Africa, tax revenues will be essential for establishing independent states of free citizens, less reliant on foreign aid and the vagaries of external capital. We hope that many of the ideas presented here will be realised and that tax justice can help all African states achieve a greater degree of self-determination in Ahttp://taxjusticeafrica.net/sites/default/files/Tax%20Us%20If%20You%20Can%20-%20Why%20Africa%20should%20Stand%20up%20for%20Tax%20Justice.pdffrica.

Regards,
Alvin Mosioma,
Director, Tax Justice Network - Africa