Well said, Trevor Manuel
Few, if any, finance Ministers in the developing world enjoy as much international respect as South Africa’s Trevor Manuel does. He has just delivered a keynote speech to the the world's tax experts at the latest OECD forum on Tax Administration in beautiful Cape Town. It is right on the money. Read it here or here.
First, he quoted from the Commission for Africa Report of 2005:
Growth and globalisation has brought higher living standards to billions of men and women. Yet, it is not a wealth that everyone enjoys. In Africa, millions of people live each day in poverty and squalor. Children are hungry, their bodies are stunted and deformed by malnutrition. They cannot read or write.
And then it gets more interesting. We would like to share a few highlights:
On poor countries:
The OECD has led the way in fostering partnerships between nations in response to many of these global public goods issues. These partnerships must be applauded but they must be extended to poorer countries who are often the victims of organised efforts to undermine their tax bases. It is a contradiction to support increased development assistance, yet turn a blind eye to actions by multinationals and others that undermine the tax base of a developing country.
Smaller, poorer countries with tax administrations that are less sophisticated cannot be expected to develop the expertise required to unravel the complex structures that multinationals and other large companies put in place to minimise tax.
From what sources will countries finance healthcare and social security when their revenue sources are under immense pressure? And, what about the poor countries who haven’t yet had the advantage of refining their tax administrations?
On Globalisation and sovereign states
Globalisation and inadequacies in global institutions have increased the complexity of tax administration. Off-shore tax havens, transfer pricing, multiple income streams and complex supply chains make the lives of administrators ever more burdensome and complex. Tax and customs evasion have gained dimensions that require increased global co-operation if they are to be addressed.
Our tax systems have essentially been designed for sovereign states. The choices available to countries are frequently an expression of their state of development.
On our collective global responsibilities
This is an area where the legitimate, rational behaviour of a single country can do considerable damage to the global economy or to specific countries.
Let me repeat the consensual refrain: that sustaining growth and development and sharing prosperity is a collective responsibility.
For the global trade system to work in the long term, everyone – including multinationals - must recognise that such short term behaviour is only likely to result in a backlash, a retreat to protectionism, and inevitably to a world that is
poorer.
On tax competition
I do know that you are dealing with the issue of tax havens. The steady downward adjustment in corporate tax rates reflects both competition between countries as well as a steady erosion of the tax bases of major countries, forcing the tax burden to be shifted to the less powerful but more vulnerable.
On inequality
In the name of competitiveness, the tax burden on the top 1 per cent of earners has declined precipitously. In a world of rising inequality, this cannot be correct. Again, only joint action by partners in a global village can deal with such inequities. More generally, it must be of concern to policy makers and tax administrators that changes to tax policies have been a significant factor driving rising inequality in the world today.
On multinational companies
One of the by-products of globalisation is that there are now fewer brands with large global brands usurping smaller regional ones. From a tax perspective, some multinationals engage in behaviour that is aimed at one purpose – the
minimisation of tax. Our world needs a set of rules that are simple, transparent and equitable to differentiate legitimate competition between countries from the steps and measures that make tax evasion or avoidance easier.
(again) For the global trade system to work in the long term, everyone – including multinationals - must recognise that such short term behaviour is only likely to result in a backlash, a retreat to protectionism, and inevitably to a world that is poorer.
On the bankers, the accountants, the lawyers
I agree with your focus on tax intermediaries – the accounting and legal professions, investments banks, and so on. The role and influence of tax intermediaries on the tax-paying public, including corporates is significant. Tax administrations need to demonstrate that they operate on the basis of fairness, that they are transparent, that the laws governing taxes are clear and that good governance is practiced. This goes along with making it easier to comply through innovative measures designed to make paying tax easier.
Intermediaries, however, influence these attempts to raise levels of compliance for good and for ill. On the one hand they may make the tax system more accessible to taxpayers. On the other they may market or facilitate aggressive tax strategies that undermine the policies of government and influence perceptions around what is fair and equitable.
In our environment, this is of particular concern as the role of the fiscus in development, redistribution and providing stability and predictability cannot be understated.
I have no doubt that tax intermediaries provide an essential function in guiding tax payers on what their duties and responsibilities are within the legal parameters. In this sense it is essential that the parties work towards building
relations that seek to maximise compliance levels – what is now termed the ‘enhanced relationship’.
On accountability, responsibility, citizens
It is, therefore, imperative that we build relations with the taxpayer on the basis of a different framework – a framework which is designed around providing a sense of social responsibility and civic duty – one where the community and society benefit.
On the future
But these ‘enhanced relationships’ should not allow us to deviate from the tasks at hand – to build a more prosperous and more equitable global economy. There is a grim reminder in Kevin Phillips book, ‘Wealth and Democracy’, in it he writes, ‘Either democracy must be renewed with politics brought back to life, or wealth is likely to cement a new and less democratic regime – plutocracy by some other name.’ The world does not have to be that extreme – this forum has convened because you, as tax administrators know that you have a responsibility to producing fairer outcomes.
Trevor Manuel was not alone at the OECD meeting. Jeffrey Owens, head of the OECD's Fiscal Affairs department, had some more specific gripes about global taxation, in an intervention aimed at the specialists. The OECD's Deputy Secretary General, Pierre Carlo Padoan, said the obvious too: capital flight to tax havens is harming the continent's development. (See more speeches from the OECD forum here, and a web cast here.)
Serious action on international taxation has the potential to do far more for the finances of developing countries than foreign aid, and would help lead poor countries away from aid dependency towards tax-financed self-reliance, with governments accountable to citizens, not to foreign donors. We have a number of suggestions about where to start. Try Country-by-Country reporting, for one. Or look at this TJN Code of Conduct on taxation. And there is much more, here.
Hats off to Trevor Manuel. We could not have said it better ourselves.
First, he quoted from the Commission for Africa Report of 2005:
Growth and globalisation has brought higher living standards to billions of men and women. Yet, it is not a wealth that everyone enjoys. In Africa, millions of people live each day in poverty and squalor. Children are hungry, their bodies are stunted and deformed by malnutrition. They cannot read or write.
And then it gets more interesting. We would like to share a few highlights:
On poor countries:
The OECD has led the way in fostering partnerships between nations in response to many of these global public goods issues. These partnerships must be applauded but they must be extended to poorer countries who are often the victims of organised efforts to undermine their tax bases. It is a contradiction to support increased development assistance, yet turn a blind eye to actions by multinationals and others that undermine the tax base of a developing country.
Smaller, poorer countries with tax administrations that are less sophisticated cannot be expected to develop the expertise required to unravel the complex structures that multinationals and other large companies put in place to minimise tax.
From what sources will countries finance healthcare and social security when their revenue sources are under immense pressure? And, what about the poor countries who haven’t yet had the advantage of refining their tax administrations?
On Globalisation and sovereign states
Globalisation and inadequacies in global institutions have increased the complexity of tax administration. Off-shore tax havens, transfer pricing, multiple income streams and complex supply chains make the lives of administrators ever more burdensome and complex. Tax and customs evasion have gained dimensions that require increased global co-operation if they are to be addressed.
Our tax systems have essentially been designed for sovereign states. The choices available to countries are frequently an expression of their state of development.
On our collective global responsibilities
This is an area where the legitimate, rational behaviour of a single country can do considerable damage to the global economy or to specific countries.
Let me repeat the consensual refrain: that sustaining growth and development and sharing prosperity is a collective responsibility.
For the global trade system to work in the long term, everyone – including multinationals - must recognise that such short term behaviour is only likely to result in a backlash, a retreat to protectionism, and inevitably to a world that is
poorer.
On tax competition
I do know that you are dealing with the issue of tax havens. The steady downward adjustment in corporate tax rates reflects both competition between countries as well as a steady erosion of the tax bases of major countries, forcing the tax burden to be shifted to the less powerful but more vulnerable.
On inequality
In the name of competitiveness, the tax burden on the top 1 per cent of earners has declined precipitously. In a world of rising inequality, this cannot be correct. Again, only joint action by partners in a global village can deal with such inequities. More generally, it must be of concern to policy makers and tax administrators that changes to tax policies have been a significant factor driving rising inequality in the world today.
On multinational companies
One of the by-products of globalisation is that there are now fewer brands with large global brands usurping smaller regional ones. From a tax perspective, some multinationals engage in behaviour that is aimed at one purpose – the
minimisation of tax. Our world needs a set of rules that are simple, transparent and equitable to differentiate legitimate competition between countries from the steps and measures that make tax evasion or avoidance easier.
(again) For the global trade system to work in the long term, everyone – including multinationals - must recognise that such short term behaviour is only likely to result in a backlash, a retreat to protectionism, and inevitably to a world that is poorer.
On the bankers, the accountants, the lawyers
I agree with your focus on tax intermediaries – the accounting and legal professions, investments banks, and so on. The role and influence of tax intermediaries on the tax-paying public, including corporates is significant. Tax administrations need to demonstrate that they operate on the basis of fairness, that they are transparent, that the laws governing taxes are clear and that good governance is practiced. This goes along with making it easier to comply through innovative measures designed to make paying tax easier.
Intermediaries, however, influence these attempts to raise levels of compliance for good and for ill. On the one hand they may make the tax system more accessible to taxpayers. On the other they may market or facilitate aggressive tax strategies that undermine the policies of government and influence perceptions around what is fair and equitable.
In our environment, this is of particular concern as the role of the fiscus in development, redistribution and providing stability and predictability cannot be understated.
I have no doubt that tax intermediaries provide an essential function in guiding tax payers on what their duties and responsibilities are within the legal parameters. In this sense it is essential that the parties work towards building
relations that seek to maximise compliance levels – what is now termed the ‘enhanced relationship’.
On accountability, responsibility, citizens
It is, therefore, imperative that we build relations with the taxpayer on the basis of a different framework – a framework which is designed around providing a sense of social responsibility and civic duty – one where the community and society benefit.
On the future
But these ‘enhanced relationships’ should not allow us to deviate from the tasks at hand – to build a more prosperous and more equitable global economy. There is a grim reminder in Kevin Phillips book, ‘Wealth and Democracy’, in it he writes, ‘Either democracy must be renewed with politics brought back to life, or wealth is likely to cement a new and less democratic regime – plutocracy by some other name.’ The world does not have to be that extreme – this forum has convened because you, as tax administrators know that you have a responsibility to producing fairer outcomes.
Trevor Manuel was not alone at the OECD meeting. Jeffrey Owens, head of the OECD's Fiscal Affairs department, had some more specific gripes about global taxation, in an intervention aimed at the specialists. The OECD's Deputy Secretary General, Pierre Carlo Padoan, said the obvious too: capital flight to tax havens is harming the continent's development. (See more speeches from the OECD forum here, and a web cast here.)
Serious action on international taxation has the potential to do far more for the finances of developing countries than foreign aid, and would help lead poor countries away from aid dependency towards tax-financed self-reliance, with governments accountable to citizens, not to foreign donors. We have a number of suggestions about where to start. Try Country-by-Country reporting, for one. Or look at this TJN Code of Conduct on taxation. And there is much more, here.
Hats off to Trevor Manuel. We could not have said it better ourselves.
posted by TJN at 3:22 am
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