• Freddie Newell

Taxation Avoidance - Its implications for the world.



Taxation, although it comes in its different forms, has been described as nothing more than a ‘mechanism to fund the social contract’[1] a way of guaranteeing certain rights to the citizens of the state because of their submission to state laws. Throughout history, taxation, whether for good or ill purposes, has been how we have funded many of our collective endeavours. For much of the time, it has enabled individuals to realise their potential and acted as an enabler for the state, society, and the economy. However, because of the evolution and development of the ever-globalised economy and "international financial architecture over the past four or five decades"[2] it has led to the payment of tax by many

multinational and transnational corporations to become an optional matter. This can be seen where around ‘60% of all global trade takes place within the subsidiaries’[3], and around half of these are located within tax havens or other jurisdictions. It has also been reported that ‘45% of all multinational corporations’ profits’[4]are shifted to these havens from countries where they are officially generated. This has a damaging effect on developing countries tax revenues, with the IMF reporting that annual taxation losses from the avoidance by these corporations across the global economy amount to "$500 billion a year"[5].


Therefore, something needs to be done, to repair the faults within the global economy and financial institutions before the situation escalates. Currently, we are seeing in Myanmar that "50 out of every 1,000 children that are born die before the age of 5"[6], 342 women die per 100,000 childbirths in Equatorial Guinea and more than 25% of children in West and Central Africa are not currently enrolled in any educational institution, compared to western countries such as Japan where ‘100% of the primary school-age children are enrolled in school’[7]. This can partly be attributed to the corruption of local elites, lack of accountability within government, and poor management.

Yet this can be primarily traced to the lack of resources that fail to meet their needs. This deprivation of resources naturally results in corruption too, creating a vicious cycle.

If this tax avoidance and lack of resources continue to persist, then we could see a rise in instability within the Global South, especially in parts of Asia, Africa, and Latin America. This has several implications for countries outside of this sphere, including the Global North. Furthermore, there are ‘272 million migrants, 25.9 million refugees, 41.3 million internally displaced persons, and 3.9 million stateless persons’[8] throughout the world. The problem of global migration has already proved to have negative implications for the Global North, but if the situation continues to persist or exacerbates then what will happen to these states? The absence of taxation revenue within the Global North means that it will become increasingly difficult for these countries to ‘invest in the future and provide hope for their citizens’[9] and if the situation is left unresolved, it could have damaging spillover effects for the Global North, making current migration statistics seem meagre in comparison.

Therefore, if states, such as those in Latin America, West and Central Africa, and parts of Asia had access to resources that perhaps the Global North has access to, and TNCs/MNCs paid their taxes, would there be a need for loans or humanitarian aid? Would these countries no longer need to rely on western nations and financial institutions for revenue, but also be free of their austerity measures and neo-colonialist measures? Would they be able to build their infrastructure such as roads, medical facilities, educational institutions and invest in their future? Would citizens within these impoverished states no longer be forced to decide on migrating to other, better-off countries with more developed economies and welfare states, rather than facing a disastrous and abysmal future in their nation? It is also clear that if we improve conditions for these underdeveloped and underfunded states, it will lessen the chances of civil war and ethnic conflicts, which generally happens when resources are depleted, giving rise to numerous groups, who then ‘compete for the control of such resources.’[10] This is one of the many reasons why we need to hold TNCs/MNCs accountable for their blatant evasion of taxation, to better fund the global economy and provide better standards of living for those who have been impoverished by the lack of taxation revenue, and it needs to be resolved urgently before we face yet another economic and humanitarian disaster.

Bibliography:

[1] P1 Krishen Mehta, Esther Shubert and Erika Dayle Siu - Tax Justice and Global

Inequality; Practical Solutions to Protect Developing Countries Revenue

[2] Ibid.

[3] Ibid.

[4] Ibid.

[5] P2 Ibid.

[6] Ibid.

[7] Ibid.

[8] https://www.weforum.org/agenda/2020/01/iom-global-migration-report-international-migrants-2020/

[9] P3 Krishen Mehta, Esther Shubert and Erika Dayle Siu – Tax Justice and Global Inequality; Practical Solutions to Protect Developing Countries Revenue

[10] P3 Ibid.


 
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