Skip to content

Taxing times: is anything wrong with tax avoidance?

19 October 2011

Joe Stead, Economic Justice Adviser – Christian Aid writes on a discussion on tax, tax avoidance and efforts to fight global poverty held at Labour Party Conference at the end of September.

Now more than ever tax is a hot topic of political discussion, but being a hot topic can usually reduce discussion to a superficial level. At the Labour Party Conference, Demos, ActionAid and Christian Aid sought to redress that balance, with a panel discussion on tax, tax avoidance and efforts to fight global poverty.

While various NGOs, such as Action Aid and Christian Aid have been highlighting the cost of tax dodging to developing countries for some time now, such links are yet to translate into firm policy from the UK government. What we do in the UK in terms of our tax policies, and the type of tax policies that the UK supports at the global stage matters. At the moment the UK is part of the problem, and our approach needs reforming. Developing countries lose far more per year from tax dodging than they receive in aid, Christian Aid estimates the cost to be around $160bn a year. The only way developing countries will become sustainable economies, and people can escape poverty, is if they are able to stand up on their own two feet by having effective tax systems that can generate the money necessary to provide public services for all their citizens. Of course corruption is part of the problem, and domestic reforms are needed, but the problem goes wider than this.

At the discussion in Liverpool, there was, I think, rough agreement by the panel on that (myself from Christian Aid, Angela Eagle MP, Richard Murphy – Director Tax Research UK, and Graham Dale – Head of Public Affairs Institute for Chartered Accountants England and Wales). The panellists agreed there is a problem and, it seemed to me, we even got close to diagnosing what causes the problem: tax havens and a lack of transparency.

Tax havens allow people and companies to avoid paying tax. This means everyone else has to suffer a combination of higher taxes to cover some of the gap, and less funding in public services to cover the rest of the gap. Because tax havens keep details secret it is difficult for revenue services to track down money held in tax havens and tax it. This is challenging enough for the UK and our advanced revenue service, but as you can imagine, for developing countries the problem is even worse. An end to tax haven secrecy is what we need, but this will only come about by governments acting together, internationally to do so. The G20 agreed to do this at the London Summit in 2009, but it hasn’t happened yet. The current government, by concluding deals like the recent one with Switzerland, is giving the appearance of not caring about secrecy.
The problem of global tax dodging is exacerbated by the fact that multinational companies are able to use complex structures (including the use of tax havens) to dodge taxes. Because they are able to keep the details of what they do secret, again it is difficult to track what they are doing, and establish what taxes they should be paying. The solution is also more transparency: if countries reported their operations for each and every country they operated in then revenue services could have more information to do their job effectively. Crucially, also citizens in every country in which these companies operate in would be able to hold their own governments to account to ensure that multinationals operating in these countries play a constructive role in the development of their economies.

And this is where the discussion began to get interesting. What are the criteria by which we should judge multinationals? Some people will tell you that the actions of these multinationals are not illegal, that they are trying to maximise profits and remain competitive (that’s true in some cases, though there are also some practices that are illegal). But legal or not is it right? The only way I feel we can answer that question is if we are able to have a proper debate about it, not just at the fringe at the Labour conference but in Parliament, in the EU, in the G20, even the UN. But the only way we will be able to have a proper debate is if we have the information to do so. So long it is possible to hide behind tax havens and a lack of transparency it is possible to deny what is really going on, and so deny citizens the right to hold companies and governments to account.

There are competing interests of civil society and politicians, consumers and business, but the only way they can be resolved is by a transparent discussion . So the challenge to us all is to get that debate, to make sure this issue rises up the agenda. Labour were leading on this, at the London summit in 2009 which promised to tackle tax havens. But where is the Labour champion of this agenda now? Labour needs to demand more of the G20, to demand more of the EU, and especially demand more from government tax policies because of the impact that these could have on poor people round the world. We cannot entertain policies that sell out the poor; tax policies that have a potential impact on development must be scrutinised carefully.

I pay taxes not just because I have to, but because it gives me a vested interest in the society I am in, and a right to hold my government and elected officials to account on how they spend them. And I want them to spend some of my taxes and some of the time my taxes pay for on making sure many more around the world get to have the same opportunity.

No comments yet

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s