Tax and development

Friday, July 18

Leading development non-governmental organisations (NGOs) are increasingly focusing attention on the lack of transparency -- of tax havens and multinational companies alike -- that hinders developing countries' efforts to raise revenues. Christian Aid -- the UK development NGO -- recently launched a report entitled "Death and Taxes", accusing tax havens and multinational companies of depriving developing countries of 160 billion dollars of tax revenues per year. 

Christian Aid recommendations: The report calls for action in two main areas, which it claims will create the possibility for effective taxation systems:

1. Domestic policy space. Bilateral and multilateral donors are urged to reassess the validity of tax policies which encourage low rates of tax on income and profits; reliance on VAT-type taxation; and elimination of taxes on trade.

2. Transparency. The report argues that the absence of an international accounting standard requiring multinationals to report country-by-country makes discrepancies between jurisdictions harder to recognise. Moreover, with no multilateral process requiring automatic information exchange between jurisdictions, it is difficult to to prevent the secrecy available in tax havens being abused to facilitate tax evasion.

Mobilisation. NGO mobilisation around tax issues is gathering momentum:

• UK development NGOs often lead shifts in the policy focus of their European counterparts; ActionAid, War on Want and the World Development Movement join Christian Aid in focusing on the issue.

• Key European development NGO bodies are now working to adopt positions.

• In the developing world, the Tax Justice Network for Africa (launched in 2007 at the World Social Forum in Nairobi) is being seen as a model for equivalent regional networks.

The UN Financing for Development meeting in Doha in November will see much discussion of domestic revenue mobilisation as key to future development finance. The global economic downturn suggests that aid flows are unlikely to increase significantly, so attention will inevitably focus on tax.  Christian Aid's report marks another significant step in development NGOs' engagement on tax issues as pressure from such organisations continues to build.