A recent conference by The Platform for Collaboration on Tax was held on how taxation is an important part of the United Nations’ 17 Sustainable Development Goals (SDG). World leaders adopted the goals at a UN summit in the fall of 2015. The goals are to end all forms of poverty, reduce inequalities, while protecting the planet.
The Platform is a collaboration of the International Monetary Fund (IMF), the Organization for Economic Co-operation and Development (OECD), the United Nations (UN) and the World Bank Group (WBG). The conference highlighted that tax structures affect more than just financing government, but also affect equality, investment, growth, environment and other SDG goals (and their 230 indicators).
It is exciting to hear about enhanced international cooperation in standard setting, capacity building and technical assistance. Teaming among the key four international tax organizations, with several regional tax organizations, and the active involvement of developing and developed country tax policy officials and tax administrations, with business and civil society groups, is encouraging. But it is only the beginning of a long and politically difficult journey.
There is some positive progress. Now there are 112 countries participating in the base-erosion and profit-shifting (BEPS) Inclusive Framework, up from the initial 44 countries. All 112 countries have signed on to implementing the four BEPS Project minimum standards, including country-by-country reporting of multinational enterprises. Further progress on curtailing BEPS and providing technical assistance to implement anti-BEPS measures is a work-in-progress. 148 countries are participating in the Global Forum on Transparency and Exchange of Information for Tax Purposes, which not only has begun Automatic Exchange of Information between countries on financial assets held by their citizens in foreign countries, but also making progress on greater transparency on the underlying owners of different types of business arrangements.
A number of countries raise less than 15 percent of their GDP in taxes, which is considered insufficient to finance basic government services for their citizens. Domestic resource mobilization requires increased tax administration capacity as well as properly designed tax structures. Many countries have large “informal” sectors, which don’t participate in the tax system or other government programs. Corruption and bribery undermine trust in governments and contribute to large illicit financial flows out of many countries.
While focusing on multinational corporations and reducing BEPS is important, the stakeholders need to recognize that corporate income tax and legal tax avoidance is only one of many tax policy and tax administration issues that need addressing for developing countries’ domestic resource mobilization. Issues of taxing rights of individual countries is not just a developing country concern, but also of developed countries, as seen in the emerging debate on the international tax effects of digitalization of the global economy. The race to the bottom in tax incentives, base erosion through tax expenditures, and significant tax gaps from non-compliance and evasion need addressing. Higher levels of tax must be achieved in the context of promoting economic growth, reducing tax uncertainty, and reducing inequality. Designing better tax structures, strengthening tax administration capabilities, and supporting statistics and analysis for continuous improvement are foundational.
There is no shortage of important tax policy and tax administration issues for all stakeholders (and young tax professionals) to work together in making progress toward the critical sustainable development goals. There is also no time like the present to start taking specific actions by individual countries. The Platform’s first global conference is a useful first step, and hopefully the next conference will report even greater progress by the Platform and individual countries.
Tom Neubig