Monday, May 12, 2008

Tax evasion kills 1,000 children every day

The development NGO Christian Aid today releases a report predicting that illegal, trade-related tax evasion alone will be responsible for some 5.6 million deaths of young children in the developing world between 2000 and 2015: almost 1,000 a day. Half are already dead.

From just two activities - transfer mispricing (where different parts of a company sell goods or services to each other at manipulated prices) and false invoicing (where similar transactions take place between unrelated companies) the developing world is currently losing $160bn a year - more than one and a half times the combined aid budgets of the whole rich world: $103.7bn in 2007.

Between 2000, when the Millennium Development Goals were set, and 2015 when they are supposed to be realised, the amount lost by these two specific methods will total US$2.5 trillion. Taking into account additional sums from aggressive tax avoidance and other forms
of trade abuse, the total loss is likely to be several times that amount.

The two illegal activities identified above, leading to these startling statistics, are an important, but by no means a complete, picture in the problem of lost taxes. There is much more, too: the legal and questionably legal mechanisms that come up under the term "tax avoidance" are likely to be at least as important again. As The Independent newspaper summarised it:

"The conventional distinction drawn between tax planning and tax avoidance, which are legal, and tax evasion, which is not, but says that avoidance is part of a "sliding scale of legitimacy", in which ever more ingenious and complex methods are used to get around the rules and shelter corporate profits, notably through the use of tax havens, places where extreme secrecy in turn encourages a more general criminality."

The report also highlights the hypocrisy of tax haven states like Britain and Ireland, which trumpet their efforts to boost foreign aid, and then yet undermine the tax bases of other states. It makes some hard-hitting regommendations.

"Christian Aid calls on the UK and Irish governments to join together in taking a lead in reforming this system and in questioning the assumptions on which it is based. Primarily, they should support international moves to curtail and regulate the secrecy of tax havens, thereby lifting the lid on the tax industry and its machinations."

A common accounting standard should also be promoted, they say, to make the hiding of profits impossible by requiring companies to report what they do on a country-by-country basis. This is exactly what TJN has been campaigning for.

"Abuse of the tax system by accountants, lawyers and bankers should also be challenged. This should be preceded by a thorough assessment of the scale of illicit capital flows, in particular tax evasion, facilitated by banks and corporations operating through the City of London or Dublin. Once identified, illicit wealth from the developing world must be repatriated."

Good idea too. The paper finishes with a very apt quote, from Raymond Baker, a senior fellow at the US Center for International Policy, a guest scholar at the Brookings Institution, and a world authority on illicit financial flows:

"For the first time in the 200-year run of the free-market system, we have built and expanded an entire integrated global financial structure the basic purpose of which is to shift money from poor to rich. [It is] the ugliest chapter in global economic affairs since slavery"


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