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Fighting the global Inequality challenge: Using the Fair Tax Monitor

‘An economy for the 99%’ and not ‘an economy for the 1%’ is what the world requires!

An ideal global economy is one which ‘benefits everyone and, not just the privileged few’.  However global trends in recent years have shrouded any prospects for the existence of this ‘ideal’ global economy. The World Bank’s inaugural report on poverty and shared prosperity  argues that reducing inequality will be crucial to attaining the sustainable development goals by 2030.  In addition, the IMF researchers have also advised that inequality negatively impacts on growth and worsens the ‘barriers and injustices faced by people because of their gender, ethnicity or geography’. All these arguments point to the dangers that inequality poses to the global economy. For example, it affects access to economic opportunities by excluding the poor (mainly composed of children, women and other vulnerable groups) from accessing education, healthcare and other basic amenities.

It is high time that World leaders transform their signatures into action so that the Sustainable Development Goals (SDGs) are fulfilled especially knowing that they signed up to the SDGs. The SDGs include Goal 10 which aims to reduce inequalities between and within countries by 2030. It is disheartening that research continue to show that we are living in times of economic (GDP) growth whilst on the ground we clearly see inequality and exclusivity.  This shows that the economic growth is rewarding a small privileged group of people and excluding the majority of the global population. Honestly, this is not the ideal global economy that the majority of humanity need. The 2017 Oxfam Briefing paper found out that ‘1% of humanity controls as much wealth as the other 99%’.  Surely such a world can never be stable. The same report also revealed some shocking and heartbreaking statistics. Some of the statistics are as follows:

  • 8 billionaire men own the same wealth as the poorest half of the world’s population;
  • One in nine people in the world still go to bed hungry; and
  • the poorest 10% of the global population still live below the extreme poverty line of $1.90 a day;

The 2017 Oxfam Briefing paper (pp.16-27) also raises some pertinent tax related issues on inequality. It points out that multinational companies (MNCs) and super rich individuals use their financial power to influence policy decisions (e.g. negotiate for tax breaks) which allow them to minimise their taxes and to maximise profits.  Moreover there is evidence that some MNCs and rich individuals dodge taxes by using tax havens as revealed by the Panama Leaks. At the end of the day MNCs and the rich individuals do not contribute their fair share of taxes which result in developing countries failing to raise sufficient domestic revenue to finance basic services. This coupled with the use of neoliberal polices which, for example, favour indirect taxes (e.g. VAT) more than direct taxes often burdens the poor more than the rich and hence perpetuate inequality.

In the above tax minimisation cases the following happens:

  • Producers and workers along the business supply chains are the ones who suffer by getting less and less of the economic cake;
  • It is the poorest people who lose out the most, as they are most reliant on the public services that these forgone billions could have provided; and
  • It is the rich and powerful corporations and individuals who benefit from ‘crony capitalism’ whilst leaving the poor to languish in poverty and outside economic opportunities;

It is important to note that tax revenues are key for funding the policies and services that can fight inequality, whilst progressive taxes reduces the gap between rich and poor. Moreover tax revenue finance basic services and infrastructure which are predominantly consumed by the poor.

Many researchers have put forward a number of proposals meant to address this runaway global inequality. This article further proposes that tax regimes, if well-structured (good fiscal policy) and administered could play a pivotal role in addressing inequality. The tax system can actually play four key roles commonly known as the 4Rs. The 4Rs are revenue mobilisation, redistribution of income from the rich to the poor, repricing the market, and ensuring representative democracy.

However most tax regimes especially in developing countries and particularly in Africa are actually structured in such a way that they do not sufficiently guarantee the 4Rs of taxation. In order for tax systems to play an important role in the eradication of inequality it is important that they are structured and administered in such a way that the 4Rs of taxation are functional. In pursuit of making the 4Rs of taxation functional, Tax Justice Network Africa, Oxfam Novib and partners, in February 2016, launched a tool called the Fair Tax monitor (FTM). The FTM is an important tool that can be used to further monitor how tax regimes are either reducing or increasing the global inequality challenge.

The Fair Tax Monitor is a unique online & evidence-based advocacy tool. It uses standardized research methodology to identify the main bottlenecks in national tax systems and to provide strong evidence regarding the functioning of national tax systems. The use of a standardized research methodology also allows for the comparison of tax policies and practices between different countries. The FTM contributes to global fight against inequality by providing solid evidence and by showcasing the relative fairness of selected tax systems.

The Fair Tax Monitor identifies six thematic categories used for evaluation. These categories are meant to cover the main issues that tax systems in developing countries face today and to reflect the normative components of a fair tax system. The six thematic categories are:

  • Progressive Tax System;
  • Sufficient Revenues;
  • Well Governed Tax Exemptions;
  • Effective Tax Administration;
  • Pro-Poor Public Spending; and
  • Accountable Public Finances

TJN-A believes that taxation is the most sustainable and reliable tool to raise domestic revenue. This has also been acknowledged internationally as shown by the recognition of the same in the Third Financing for Development Outcome Document. TJN-A therefore calls for African governments to strengthen their tax bases to enable them to mobilise sufficient domestic revenue to finance investments in basic public amenities which address the needs of the poor and also to use the tax system to play a wealth redistributive role by taxing the rich more than the poor. The use of the Fair Tax Monitor as a tool to monitor can go a long way in making sure that the tax system guarantees the functionality of the 4Rs of taxation and ensuring a transparent and equitable tax system.  If this is accomplished this will go a long way in meeting the Sustainable Development Goals and the Africa Union Agenda 2063 whilst also contributing significantly to the elimination of global inequality.

The inequality debate is important to TJN-A because it dovetails with TJN-A’s vision of “A new Africa where tax justice prevails to contribute to an equitable, inclusive and sustainable development” as well as its 2016-2020 overall strategic goal of championing for “Improved policies and laws that enhance tax revenue mobilisation in Africa by 2020

This blogpost was authored by Cephas Makunike, Policy Lead on Tax and Inequality at Tax Justice Network – Africa.

 

 

03/02/2017

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About TJNA

The Tax Justice Network-Africa (TJN-A) is a Pan-African initiative and a member of the Global Alliance for Tax Justice. Launched in January 2007 during the World Social Forum (WSF) held in Nairobi, TJN-A promotes socially- just, accountable and progressive taxation systems in Africa. It advocates for tax policies with pro-poor outcomes and tax systems that curb public resource leakages and enhance domestic resource mobilisation.

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