G20 must tackle new tax deal for developing countries
When leaders of the world's leading economies meet at the next G20 Summit in St Petersburg to plan how to boost growth and fix the global financial architecture, they'll arrive with one issue already agreed: the need to re-write international tax rules.
Current laws – some dating back to the 1920s – are simply no longer fit for purpose in a modern globalised world. Created to avoid the "double taxation" of companies working in more than one country, they're now being abused to avoid taxation in any country.
A scandalous consequence is that the world's poorest countries are losing billions that could be spent on tackling poverty and boosting their economies. Developing countries lose $100-billion a year in tax revenues from illicit financial flows, Global Financial Integrity estimates that it's as much as eighty cents of every dollar in economic development assistance that they receive . Illicit financial outflows from Africa alone are estimated at $50-billion a year, exceeding the level of official development assistance to the continent, which stood at $46.1-billion in 2012.
Former South African president Thabo Mbeki is chairing the High Level Panel on Illicit Financial Flows from Africa, established by the United Nations Economic Commission for Africa and the African Union to address the problem of illicit financial outflows from Africa. As Africa's sole representative at this premier economic forum and a co-chair of the G20 Development Working Group, South Africa has a key opportunity to provide continued leadership on this issue in St Petersburg.
Over the two-day St Petersburg summit alone, the money hemorrhaging from developing countries into tax havens would be enough to finance the entire annual education budgets of Kenya and Tanzania, or to help 2.5-million farmers in Indonesia provide food for themselves and their families.
More than half of the world's poorest people live in G20 countries, and the Group's leaders have acknowledged that for prosperity to be sustained it must be shared more equally. In July, G20 finance ministers approved an ambitious plan to clamp down on tax dodging by multinational corporates. This is a welcome first step. Now the G20 must finish the job, and do so without delay.
It will take considerable political courage to go beyond marginal fixes of a broken system to gain real progress with tax dodging. Getting all countries to sign up to the same global standards, and to change their domestic tax codes, will be challenging. An immediate start could be made by agreeing on measures to tackle financial secrecy, including requiring corporations to disclose their tax practices worldwide on both a project-by-project and country-by-country basis.
But before that point, the G20 needs to treat developing nations as equal partners in the search for solutions. So far, poorer countries – those particularly affected by corporate tax avoidance – have not been invited to the negotiating table.
It is essential that developing countries have an equal stake in negotiations about rules that will have huge impacts on their economies and societies. It can't be assumed – as it is often the case – that the interests of countries such as Brazil, India, South Africa and Indonesia (let alone Russia or the USA) are synonymous with those of smaller developing countries outside of the G20 tent.
The stakes are high: economic growth alone won't be enough to prevent poverty escalating across G20 countries and beyond. Leaders in St Petersburg, including South Africa, need to agree a way to tackle widening inequality gaps, and to map out growth strategies that are balanced and inclusive. To do this, they must rise to the task of creating a fair and just tax system for all.
Marianne Buenaventura Goldman is the governance advisor for Oxfam.