Financial Crisis 2008 – Aid & Taxation

4 Dec

The UN conference on Financing for Development (28 November – 2 December) has once again sparked a debate on the urgency to providing aid to the global poor.

In its statement, ‘Fears grow that rich countries are set to turn their backs on global poor’, Oxfam is urging the rich countries not to reduce or stop its efforts in achieving the Millennium Development Goals of alleviating poverty in the South as the financial crisis unfolds. According to the statement, the World Bank (WB) has estimated that as many as 40 million people will become ‘poor’ as a result of the economic meltdown.

The humanitarian agency has also urged the rich countries to: uphold their ‘aid promises and agree to specific timetables to reach the target of spending 0.7% of Gross National Income (GNI)’; ‘stop capital flight and increase transparency in the international financial system’; ‘commit to participating in existing innovative finance mechanisms and to explore new mechanisms such as a Currency Transaction Tax (CTT)’; and ‘radically overhauling the global financial architecture into a system in which the voices of poor countries are greatly strengthened’.

The Social Watch Platform, a coalition of NGOs dedicated to social justice issues, has also recently released its annual 2008 report which coincides with the theme of the 60th anniversary of UNHDR. In one of its section, ‘Waking up to the true story of tax’, written by Nicholas Shaxson and John Christensen of the Tax Justice Network, the authors argued that NGOs and the UN need to focus on lobbying for an international taxation regime at the current Doha conference.

Quoting from a World Bank report, the writers reported that as much as 1 – 1.6 illicit trillion US dollars cross national borders each year with about half  (500 – 800 billion) from developing and transitional economies. In comparison, the reverse direction of foreign aid is minimal, amounting to only 100 US billion from OECD countries to the poorest countries. Oxfam also points out the hypocrisy of rich states: While aid to developing countries in 2007 totaled $104 billion, the US and EU, alone  ‘mobilized around $3 trillion (30 times this) to help bail out their banks’.

Shaxson and Christensen further contended that international taxation is an important issue as multinational corporations and wealthy elites are avoiding this liability by parking their money in ‘tax havens’ such as Switzerland, Cayman islands and Singapore. The US and Britain are also heavily lobbying against greater transparency in this aspect because they need to mask their large fiscal and trade deficits, ‘… by shrouding financial inflows in secrecy, and failing to tax them… they help attract inflows that finance these deficits’.

Their analyses are supported by Oxfam which noted that out of every dollar of aid to Africa, 7 dollars is illicitly transferred in the opposite direction. It also noted that the main development problem plaguing the continent is neither corruption nor crime, ‘which only account respectively for 5% and 35%, but is linked to tax avoidance and tax evasion by multinational companies, estimated at US$350-US$500 billion a year’.

To tackle this issue, the Tax Justice Network has urged the UN to draft up a UN Code of Conduct on Tax at the DOHA meeting. It has also submitted a list of recommendations to the UN Tax committee in 2007 calling for the IMF, WB and OECD to ‘help developing countries tackle capital flight and lost taxes’ amongst other measures.

– References –
1. ‘Fears grow that rich countries are set to turn their backs on global poor’, Oxfam, accessed 2 December 2008.

2. Shaxson, N & Christensen J, 2008, ‘Waking up to the true story of tax’, in Social Watch Annual Report 2008, accessed 2 December 2008, pp. 15 – 18.

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