Curbing illicit financial flows and tax avoidance is particularly urgent in Asia, where peoples continue to suffer from budget cuts in essential social services even as they experience multiple crises. Making the rich pay their share is also particularly challenging in the region, as business interests are closely tied up with the interests of those in the government.
If summits of the super-rich like the OECD and the WEF provide any indication, tax transparency and accountability efforts are facing an uphill battle ahead. But the long history of peoples' struggles for justice and democratic movements in Asia are testament to the rich resources of hope that lie in our midst.
The Pandora Papers Exposé: Hoarding wealth amidst global hunger and uncertainties
While the vast majority of people across the world are under the grip of hunger and economic insecurity, hundreds of politicians, business executives, royalties, celebrities, religious leaders, and even drug dealers were exposed to have been salting away their wealth in faraway offshore accounts. These individuals are counted among the super-rich, many of whom are set to meet with government leaders in Davos for the 52nd World Economic Forum this week.
Earlier this month, the International Consortium of Investigative Journalists (ICIJ) completed its releases of massive stores of data—2.9 terabyte of images, emails, and spreadsheets—of secret financial dealings of the global elite. Dubbed “the Pandora Papers,” the documents detailed transactions of money estimated to range from US$5.6 to US$32 trillion.
First published in October 2021, the Papers implicated individuals and companies from countries such as Cambodia, India, Malaysia, Pakistan, the Philippines, Qatar, South Korea, and the United Arab Emirates. Also included were individuals from Switzerland, Ukraine, the United Kingdom, as well as a former official of the International Monetary Fund and the Legionaries of Christ religious order.
Previously, the ICIJ released the Panama Papers1 in 2016, with 11.5 million confidential documents. A year later in 2017, it also leaked the Paradise Papers, which outed the likes of AIG (US-based leading global insurance company), Prince Charles, Queen Elizabeth II, the president of Colombia Juan Manuel Santos, and U.S. Secretary of Commerce Wilbur Ross.
In the Pandora Papers, the Philippine Center for Investigative Journalism (PCIJ) and Rappler listed more than 940 individuals and companies with Philippine addresses2. Some of the more recognizable names from the business sector include the Aboitiz family, the Sy siblings, Helen Dee, Rolando Gapud, and Enrique Razon Jr. Government officials or individuals with links to government mentioned in the Papers include Transport Secretary Arthur Tugade, Dennis Uy, and Senator Sherwin Gatchalian and his family.
The Aboitiz family owns the Aboitiz Group, with interests in banking, real estate and infrastructure, and power generation—the Aboitiz Power Corp., a Philippine listed company that operates several coal-powered plants.
The Sy siblings, owners of the SM Group conglomerate, are listed in Forbes 2021 as the richest Filipinos with a combined worth of $16.6 billion. In 2016, the group denied allegations that it had been practicing endo (contractualization). But In the same year, an inspection of the Department of Labor and Employment in SM stores in Metro Manila revealed that only 34,210 out of the company’s 67,248 employees had regular employment status. By keeping the bulk of its employees on a contractual basis, the company is able to avoid complying with labor laws and core international labor standards, which guarantee certain benefits for regular workers.3
Of Dictators and Dirty Energy: Knotted Ties Unraveled
Helen Dee is the chairperson of Rizal Commercial Banking Corporation (RCBC). The bank was used by cyber criminals to steal $81 million from the Bangladesh Bank in February 2016.4 The bank has been financing investments in coal power plants, but in December 2020, it announced that it will no longer finance new coal power projects.
Rolando Gapud served as financial adviser for the family of the former dictator Ferdinand E. Marcos. The illegally-amassed wealth of Marcos has been a subject of numerous court litigations. As a respondent in several cases filed by the Philippine Commission on Good Governance (PCGG), Gapud later agreed to help identify some of the ill-gotten wealth,5 portions of which were eventually recovered.
Although ousted by a popular revolt in 1986, the Philippine government is far from recovering fully the Marcos family’s stolen fortune, which is deftly hidden through a web of cronies, like Gapud. Imelda, the family’s flamboyant matriarch, was convicted by the Sandiganbayan,6 the country’s graft court, for seven counts of corruption in 2018 while serving as a lawmaker for her husband’s hometown. Today, prospects of recovering the Marcoses’ ill-gotten wealth are bleak, as Ferdinand “Bongbong” Marcos Jr. is poised to take over the Philippine presidency after highly-contested elections7.
Way back in 2013, the ICIJ reported that Imee Marcos, the eldest progeny of Marcos, is one of the beneficiaries of the Sintra Trust,8 created in June 2002 in the British Virgin Islands. Documents show that Imee was a financial advisor for the Sintra Trust, including a company in which the Sintra Trust was a beneficial shareholder, ComCentre Corporation. The documents also mentioned a bank account in the Sinagapore-based United Overseas Bank Limited.
The Pandora Papers also mentioned Dennis Uy, a Davao-based businessman engaged in shipping and logistics, gas distribution, telecommunications and other industries. He is known to have donated P30 million to Rodrigo Duterte’s presidential campaign. He was later appointed presidential adviser for sports, and has been an honorary consul to Kazakhstan since 2011.
Uy was embroiled in a business controversy in 2021 with the Makati Business Club, after his company, Udenna Corporation, acquired 90 percent of the Malampaya offshore gas field. Malampaya9 is supplying five power plants in Luzon, the country’s largest island. In the recently concluded Philippine elections, Uy’s logistics firm signed a Php 500 billion contract with the Commission on Elections to transport electoral ballots and vote counting machines, a significant number of which were defective on the day of the election10. As Uy is widely identified to be within the administration’s key elite circles, the granting of the bid to his logistic firm has been under fire.
Tugade and his children appear in the Trident Trust records as owners of Solart Holdings Limited, a British Virgin Island company. In the same Papers, members of the Gatchalian family are mentioned in nine offshore companies.
Earlier in 2013, Manny Villar who is the second richest Filipino11, was reported by the PCIJ to have been maintaining offshore accounts. Villar’s wife, Cynthia, chairs three Senate committees in the current 18th Congress—agrarian reform, environment, and agriculture and food. The Villars own vast tract of land under their real estate business12, and it so happened that Cynthia’s committees have oversight in government land-related programs and developments.
Along with the Villars, Jinggoy Estrada who is Senator-elect in 2022 under the Ferdinand Marcos Jr. and Sara Duterte ticket was also reported to have offshore accounts. Jinggoy and his father, former president Joseph Estrada were both convicted and jailed for corruption raps. The older Estrada was later pardoned by another former president, Gloria Macapagal-Arroyo, who herself was convicted by a lower court in a plunder case but was cleared by the Supreme Court in July 2016, weeks after a close ally, Rodrigo Duterte, was elected president.
The Asian Connection
The inclusion of individuals from the Philippines in the Pandora Papers is hardly surprising, as elites from at least a dozen Asian countries have also been revealed to maintain offshore accounts. Two of the financial services providers mentioned in the Papers, Asiaciti Trust and Il Shin, are based in the financial centers of Singapore and Hong Kong, respectively.
The Indian Express reported13 more than 300 Indians with offshore accounts, including two former officials of the Indian Revenue Service, and a score of Bollywood celebrities, sports stars, business persons, and even individuals accused of fraud and other financial crimes.
The Pandora Papers14 also revealed that financial backers, officials and family members close to Pakistan’s Prime Minister Imran Khan to be owning concealed companies and trusts holdings, with several military leaders being involved. In Sri Lanka, former deputy minister Nirupama Rajapaksa15 and her husband used shell companies and trusts to hide some $18 million in assets, while Nepal’s lone billionaire, Binod Chaudhary, a politician and retail and manufacturing magnate, owns shares in three offshore shell companies.
The Center for Investigative Journalism (CIJ) Nepal16 reported offshore dealings of the Malaysian billionaire founder of Top Glove, a giant rubber glove maker which hugely profited from the COVID-19 pandemic. The company was accused of employee abuses, including forced labor, with workers mostly coming from low-income countries.
In Malaysia, the Malaysiakini17 investigated the role of Singapore in the global offshore financial system. They reported that while the island city-state does not have attractive tax and asset protection comparable to other offshore financial centers, it offers specialized financial services, such as creating and managing shell companies and trusts in overseas jurisdictions.
In Thailand, the Isra News18 reported that Chitpas Kridakorn, a parliament member and heiress of the Singha beer empire, was a potential beneficiary of a trust that owned luxury properties in the United Kingdom, based on a 2017 transactions, although it was not ascertained whether the transfer was finalized.
The Tempo magazine on the other hand, reported that two top Indonesian officials are linked 19 to several offshore companies. Coordinating Minister for the Economy Airlangga Hartarto reportedly owned two companies registered in the British Virgin Islands, but he denied any connections. The report also said that Coordinating Minister for Maritime Affairs and Investment Luhut Binsar Pandjaitan was a director of a Panama-based oil company.
One glaring reality in the Pandora Papers involving individuals in Asia —many of those implicated have close links to government officials, if not former or current government officials themselves. Business and governance are intimately linked. This makes future actions and lobby efforts for transparency and accountability more difficult.
“The legality is the true scandal”
While some of the transactions can be legitimate investments, the intention to hide it from the country of origin by account owners is clear and could be inferred as an attempt to avoid tax obligations, conceal ill-gotten wealth, or worst, launder money acquired from criminal activities.
In October last year, activist and science-fiction author Cory Doctorow20 tweeted that offshore dealings of the super elite’s being legal is the true scandal. “Each of these arrangements represents a risible fiction: a shell company is a business, a business is a person, that person resides in a file-drawer in the desk of a bank official on some distant treasure island,”he said.
Doctorow was commenting on what the Pandora Papers revealed—the intensive use of shell companies which are mostly inactive, maintained for future and various financial arrangements. These shell companies are registered in an OFC (Offshore Financial Center), a territory or country that provides foreign companies with business and financial services. Some of the well-known OFCs include the British Virgin Islands, Bahamas, Bermuda, Cayman Islands, the Isle of Man, Seychelles, Hong Kong, and even Switzerland. Some of the documents obtained in the Papers were also in trusts set up in the US, such as South Dakota and Florida.
The ‘offshore’ system is nothing new—it originated in the 1960s, with the creation of the Eurobond21: a financial investment instrument allowing owners to move their wealth covertly across jurisdictions, while evading taxes altogether, or at the very least, avoid payment of higher rates of interest.
In the 1960s, the European middle-class had difficulty finding low-risk places to put their savings and earn safe returns. Regulation Q, formulated in 1933 under the US Glass-Steagall Act,22 discouraged Europeans from putting up deposit accounts because the law limits interest rates paid on deposits in checking accounts. Added to this, the US’s Interest Equalization Tax of 1963, which carried 15 percent tax on the price of a bond purchased, decreased the capital account outflows, increasing investment in the US. Eventually, it choked the flow of dollars into Europe; inhibiting companies from funding their projects. The Eurobond23 was the workaround, and it served later as the prototype for other money market funds.
Today, it is the super-rich that is handsomely benefitting from the outcome of the Eurobond and its underlying needs that birthed the offshore system. The financial market in which offshore banking is just one limb, has now mutated into a beast, siphoning off every wealth created anywhere in the planet.
Considering that a huge percentage of this stashed-away wealth were generated at the expense of the working people through slave-like conditions and unlivable wages, not to mention the rapacious exploitation of the environment which threatens the global ecological balance, offshore banking takes on a whole new meaning.
A study by Daniel Reck24, an assistant professor from the London School of Economics and Politics published in 2021, states that tax evasion schemes by the super-rich are becoming sophisticated” and that even expert auditors are now having difficulty locating offshore accounts, with the top one percent richest benefitting.
One problem is in the privacy and protection these OFCs provide—privacy rights which shield individuals from declaring their assets and accounts. The grey area lies in this point of nondisclosure, when it becomes next to impossible to differentiate tax minimization from evasion or outright fraud.
Reck and his colleagues at Carnegie Mellon University and the University of California said that the top one percent of American earners fail to report about 21 percent of their incomes to the Internal Revenue Service (IRS), significantly more than was previously known. “These super–high-income taxpayers, who have so much to gain from successfully evading their taxes, are much more sophisticated at evasion than the other 99 per cent of earners,” the researchers said25.
The 2021 report by the United Nations High-Level Panel on Financial Accountability, Transparency and Integrity Panel (UN FACTI),26 has identified that large portions of revenue that could be used by governments to benefit their own peoples are being lost in an elaborate scheme of tax avoidance and evasion. The UN FACTI Panel report stressed the importance of a global mechanism for public registries of beneficial ownership to curb these abusive practices.
With legal loopholes that can be exploited to actually evade taxes, the legality of offshore banking is no longer a non exitus. Or perhaps, that tax avoidance through storing wealth in offshore accounts is even legal in the first place is the main issue, and nothing but short of scandlous.
Initial impacts of the Pandora expose
In 2016, the Panama Papers ignited protests that led to authorities launching hundreds of tax probes and criminal investigations. Iceland’s prime minister eventually resigned, and a Ukrainian politician called for the impeachment of their president. Last year, a Bollywood actress was questioned for six hours by Indian authorities on her inclusion in the Papers.
In Malta, Keith Schembri, former Prime Minister Joseph Muscat’s chief of staff, was charged with money laundering and fraud, while in Denmark, the country’s tax minister cited the Panama Papers to justify hiring hundreds of new employees to bolster the fight against tax fraud.
In the U.S the Panama Papers was instrumental in pushing for the enactment of the Stop Tax Haven Abuse Act and the For the People Act.
The Philippines, however, has yet to catch up with the growing clamor to investigate offshore banking and tax avoidance. The exposé on the offshore account of Jinggoy Estrada in 2013 for instance, did not result in tax fraud investigations, despite his being convicted with corruption. The government is still struggling to enforce tax laws in its own jurisdiction particularly against the wealthy individuals and multinational corporations. Taxes from the ordinary working people however are automatically deducted from their paychecks, on top of burdens from heavily taxed products and services that they regularly consume.
According to tax expert Mon Abrea, corruption at the Bureau of Internal Revenues (BIR) is embedded in the system. A former BIR examiner and a prominent advocate for genuine tax reform in the country, Abrea said in 2018 that whatever the TRAIN law was can hope to collect will be wasted due to corruption. He cited a proposed bill on the creation of national revenue authority, where the current BIR examiners will be forced to retire, and only those who pass new stringent mechanism will be rehired27.
Currently, the BIR is unable to address issues of tax non-payment by big business and its relation to government corruption.
In 1993, the BIR filed a tax case against Lucio Tan, one of the country’s tycoons, for not paying P7.68 billion in ad valorem, income and value-added taxes in 1992. The BIR later filed two more cases, accusing Tan of tax non-payment amounting to P9.51 billion in 1990 and P8 billion in 1991. Tan was able to halt the proceeding proper for 12 years. In 2005, the cases finally held their first hearing, with the tax claims ballooning to P25 billion. But a year later in 2006, the Marikina Metropolitan Trial Court dismissed the tax case for lack of evidence.
In 2017, President Duterte announced that Lucio Tan owes the government at least P30 billion in taxes. A year after in 2018, he suddenly “cleared” the tycoon of past tax liabilities, saying he would “forever shut up” on the subject, after Tan as CEO of Philippine Airlines (PAL) offered additional plane to fly home repatriated OFWs from Kuwait, and after PAL’s payment of P6 billion in taxes in 2017.
But the best piece of evidence that tax law enforcement in the Philippines for the rich and powerful is different for the ordinary working Filipinos is the recent Commission on Election (COMELEC) decision to junk the disqualification case against presidential candidate Ferdinand “Bongbong” Marcos Jr. stemming from an earlier court indictment for estate tax non-payment. A portion of the COMELEC decision penned by the now controversial Commissioner Aimee Ferolino, read: “The failure to file tax returns is not inherently wrong in the absence of a law punishing it.”
In the case of the Lopez-owned media giant ABS-CBN’s franchise non-renewal,28 tax non-payment has taken a different role—political weapon against a private company seen as non-ally of the sitting government. The controversy has rendered 11,000 ABS-CBN workers jobless.
Layered benefits for the already rich
Offshore financial dealings have already demonstrated how the super-rich can safely tuck away their wealth from public scrutiny, dodge taxes and take away potential public revenues. It has been noted also that those who maintain offshore accounts are either super-rich individuals or government officials. With that in mind, it is now easy to imagine that any attempt to regulate the wealth creation and preservation of the rich can be swiftly dealt with by those who benefit from offshore banking in the government.
Philippine Finance Secretary Carlos Dominguez III for instance asserted that instituting a wealth tax carries the risk of capital flight.29 He did not say however that the super-rich do not need any reason to move their money as they see fit. This is in spite of the reality that in times of economic crises, the super-rich are the same group that benefit more from government interventions and incentives.
On March 26, 2021, the Philippine Congress enacted Republic Act (RA) 11534, otherwise known as the Corporate Recovery and Tax Incentives for Enterprises (CREATE), formerly known as TRABAHO bill, the second part of the TRAIN Law. Hailed as a COVID fiscal relief to domestic and foreign corporations doing business in the Philippines, it amended several provisions in the old Tax Code. It reduced corporate income tax from 30 percent to the current 25 percent, retroactive to July 1, 2020, and will be reduced further by 1 percent annually in the next six years, up to 20 percent by 2027.
Earlier in June 2020, economists from the country’s top universities issued a position paper opposing its passage. Former UP School of Economics (UPSE) Deans Raul V. Fabella and Ramon L. Clarete and Ateneo School of Government Dean Ronald Mendoza explained that the revenue loss the government will incur is far too great in a time when the need to increase the tax effort is critically important.
According to Fabella, the looming U-shaped recovery will diminish the possible gains of TRAIN law, whether the government will retain the 30 percent or enforce the new 25 percent corporate tax. Clarete for his part noted that during the Asian Financial Crisis and the succeeding Global Economic Crisis in 2007-2009, the country was forced to cut on corporate income taxes to encourage more firms to pay their taxes, but the revenues only improved after the economy finally recovered. He also said that it is only at the end of the Covid-19 crisis that investors can regain the confidence to invest30.
While Finance chief Dominguez claimed that CREATE will generate P42 billion in extra capital once the bill is enacted, and P625 billion over the next five years, economist JC Punongbayan said that it will not jumpstart the ailing economy.
According to Punongbayan the government should instead put money directly in the hands of workers through cash transfers, wage subsidies, or zero-interest loans. He also said that CREATE will favor big businesses, not the MSMEs that employ about 63 percent of the Filipino workforce and were hardest hit by the pandemic. The difference in tax savings, he said, would be in the billions for big business, but only a few thousands for the small business owners.
The assertions of the economists mentioned above in 2020 that CREATE will not result in a rebounding of investments proved to be correct. In November 2021,31 the Philippine Economic Zone Authority reported a 25 percent drop in investment pledges. In February 2022, the drop increased to 27 percent.
Labor groups for their part have called for vigorous government spending, particularly continued support for household’s expenses through cash transfers. The labor sector also proposed economic activities which will generate jobs and income for workers, such as the provision of public transport (through service contracting), provision of infrastructure useful in containing the pandemic and contact tracing. Aside from health, the government could have also augmented its spending in other sectors. Finally, the groups have proposed government stimulus in economic activities, by subsidizing costs of production and wages.
With not enough money to finance its needed economic interventions, the government resorted to borrowing. By the end of 2021, the country’s debt stood at P11.7 trillion, almost P2 trillion or 19.7 percent more than the P9.8 trillion recorded ending 2020. Domestic debt reached P8.17 trillion, 22 percent higher than 2020, while external debt grew 14.8 percent to P3.56 trillion. According to the Bureau of Treasury, the debt is “still within the accepted sustainable threshold as the economy continues to recover from the effects of the pandemic.”
But president Duterte and his economic managers allocated the borrowed money into something else. The 2021 budget indicated huge allocation to infrastructure projects with unestablished social benefits, instead of vaccines and healthcare needs. Whatever limited resources are allocated for public health intervention was compromised by the anomalous Pharmally transactions32. The government has also poured some P19.5 billion to its anti-insurgency program. Allocation for the poor, workers, and small businesses took the backseat.
Where lies our hope?
In Greek Mythology, Pandora inadvertently opened a box left to the care of her husband. Expecting to contain precious gifts, she quickly realized to her dismay that it contained illness, hardship, trouble and pain for humanity. In the end, however, she found out that there remained at the bottom of the box something that can compensate for or even undo the plagues: hope.
The Pandora Papers has exposed not only the growing divide between the haves and have nots. It also revealed that the world has become no more than a playground for the monied class.
A core function of any democratic society is the effective capacity of the government to tax excessive wealth to reduce inequality and disparities of political influence.
These revenues that can be recovered from recovering and taxing offshore wealth can be mobilized for infrastructure, hospitals, schools, and other essential public services necessary for inclusive and sustainable development.
Curbing illicit financial flows and tax avoidance is particularly urgent in Asia, where peoples continue to suffer from budget cuts in essential social services even as they experience multiple crises.. Making the rich pay their share is also particularly challenging in the region, as business interests are closely tied up with the interests of those in the government. If summits of the super-rich like the OECD and the WEF provide any indication, tax transparency and accountability efforts are facing an uphill battle ahead. But the long history of peoples’ struggles for justice and democratic movements in Asia are testament to the rich resources of hope that lie in our midst.
3Endo is a contraction of ‘end-of-term’ referring to companies’ practice of hiring workers for contractual work, of usually five months and sometimes, even less. It falls short of the required six months continuous work which under the Philippine labor law can be a basis for regular employment status. The practice effectively prevents workers from joining unions, denying them better benefits through collective bargaining. It also prevents workers from charting a better life as planning is difficult in an employment that ends in five months, and subjects them to an almost permanent state of insecurity. Ending endo was one of the unfulfilled political promises of the current president, Rodrigo Duterte. See: https://www.rappler.com/newsbreak/iq/201468-duterte-endo-contractualization-promise-2016-to-2018/
20 An advocate for liberalising copyright laws, co-founded the free software P2P company Opencola in 1999. Themes of his work include digital rights management, file sharing, and post-scarcity economics.
21 A debt instrument that's denominated in a currency other than the home currency of the country or market in which it is issued
22 Repealed in 1999
ADB's Asia Pacific Tax Hub a Trojan Horse
by Pooja Rangaprasad and Jeannie Manipon
April 6, 2022
The Asian Development Bank (ADB) launched the Asia Pacific Tax Hub on domestic resource mobilization and international tax cooperation in 2021. The stated objective under “international tax cooperation” is to promote tax initiatives of the Organization for Economic Cooperation and Development (OECD), a club of mostly high-income countries.
This explicit design and rationale of the Asia Pacific Tax Hub is extremely concerning considering the long history of criticism by developing countries, including in Asia, of OECD tax standards being biased and unfair.
Several Asian countries are not part of these OECD forums. For instance, the ADB notes that 26 of the 46 ADB developing members are not part of the OECD BEPS Inclusive Framework. (BEPS stands for “base erosion and profit shifting.”)
Asian civil-society organizations have criticized this ADB tax hub for being created without broad public consultation in the region and expressed concerns that it will reinforce the gross power imbalances in decision-making around global tax rules.
Rather than address the global constraints to domestic resource mobilization, the ADB tax hub will only reinforce the current problematic power dynamics in the international tax architecture dominated by OECD countries’ interests. It also raises important questions on how regional cooperation gets defined in Asia, and in whose interest.
Criticism of OECD tax standards
Developing countries have for years criticized OECD tax standards as biased and ineffective. During the recent negotiations of the OECD BEPS tax deal, the African Tax Administration Forum noted that Africa risked being “collateral damage” in the process.
Argentina’s finance minister has also complained that the BEPS deal is bad for developing countries, with their concerns largely ignored in the process and being forced to choose between “something bad and something worse.”
Pakistan, Sri Lanka, Nigeria and Kenya have already rejected this recent OECD tax deal. Pakistan’s finance minister said his country did not join the deal as it has “nothing for developing countries.”
Nigeria’s finance minister explained that many developing countries would experience reduced revenue collection by implementing the OECD deal.
A recent United Nations report noted that the 2021 tax deal of the OECD Inclusive Framework would only benefit a small number of developed countries and that developing countries stand to lose out.
Civil-society organizations globally are calling on developing countries to reject this tax deal and not sign on to any OECD multilateral, legally binding agreements that will implement these decisions.
Currently, it is only a political statement and not a binding agreement. The question arises as to why the ADB is promoting such OECD decisions, and in whose interest.
The Group of 77 and China (a grouping of more than 130 developing countries in the UN) have instead been calling for a universal, intergovernmental negotiation process at the United Nations to address the international tax system where all developing countries can participate on equal footing.
However, OECD countries continue to block that call in the United Nations and instead are now finding “regional” entry points to promote these decisions with developing countries.
Redefining ‘regional cooperation’
The recent G20 Finance Ministers and Central Bank Governors Meeting communiqué mandated the OECD to identify areas where domestic resource mobilization efforts can be supported in the Asia-Pacific region in collaboration with the ADB Asia Tax Hub as a “top priority.”
It is deeply problematic that bodies such as the Group of Twenty and OECD are dictating regional priorities despite having no mandate from Asia-Pacific countries that are not members of G20 and OECD to do so.
This is further compounded by the fact that membership of some of these Asia-Pacific bodies already includes non-regional members. Of the ADB’s 68 members, 19 are outside of Asia and the Pacific. Similarly, the UN Economic and Social Commission for Asia and the Pacific (ESCAP) also includes members such as the US, the UK, France and the Netherlands.
For an issue as politically sensitive as taxation, the presence of non-regional members in such bodies risks undermining regional priorities, especially of developing countries in the region.
Indonesia as current G20 chair and India as the upcoming G20 chair should be upholding interests of developing countries in Asia instead of rubber-stamping the interests of OECD countries. Asian developing countries should reject this international tax cooperation agenda of the ADB tax hub, which is nothing more than a Trojan horse to promote biased OECD tax initiatives in the region.
APMDD members in India poised to launch campaigns calling for tax and fiscal policies that benefit women and children
Members of the Asian Peoples’ Movement on Debt and Development in India are set to launch campaigns to call for increased government subsidies for health care, press for a portion of taxes to be used for the welfare of women and children, and demand fewer taxes on fishing gear. They will also launch a social media campaign against the rise in fuel prices and LPG.
These tax and fiscal justice campaign plans were discussed on March 30, 2022, in a country consultation on tax and fiscal justice in New Delhi, India attended by representatives of APMDD member organizations. This included 30 leaders coming from the National Hawker Federation, Indian Social Action Forum, All India Women Hawker Federation, Samata, Mines Minerals & People, and Environics Trust attended the country consultation.
APMDD members and resource persons from the Centre for Budget and Governance Accountability (CBGA) tackled global, regional, and national tax policy developments and other related issues that impact inequalities. Participants also planned out key steps in advancing a national campaign for tax and fiscal justice.
Jeannie Manipon, APMDD’s Development Finance (DevFin) Program Manager, outlined critical regional and global trends in the tax policy landscape. She noted that even in the pre-pandemic situation, governments had been relying on indirect taxes such as VAT and GST in many countries in the region, including India, and on other regressive tax policies. This undermines the redistributive function of taxation, thus, public services end up being funded by the same people that were meant to benefit from them, according to research.
This flawed tax system and the long-standing inequalities both on the domestic and global fronts were revealed and exacerbated by the pandemic, feeding what Manipon referred to as, “the virus of inequalities within and among countries.” During the pandemic, big companies and wealthy individuals benefited from generous tax incentives from governments under the guise of economic recovery, even as they continued tax avoidance and evasion practices, and exploited loopholes in tax systems.
To counter this flawed global tax system, civil society organizations have pushed for progressive taxation and called for a UN Tax Convention, Manipon said. She stressed the need for civil society to muster its collective voice calling on governments to not sign away taxing rights under unfair tax deals, peddled by G7 and the OECD countries.
Manipon said civil society groups should seize global advocacy moments such as the G20 summit taking place in Indonesia in November this year, and in India next year, to advance the call for tax justice.
Looking at the Context in India: Key Issues in Tax and Fiscal Policy
Sarah Farooqui, CBGA Senior Policy Analyst, said that India has one of the lowest tax-to-GDP ratios in the world which is expected to decline next year. She said that the higher the tax-to-GDP ratio, the greater the fiscal space the country has to finance various public services.
“Historically, India has always been more dependent on indirect taxes,” she said. “During the pandemic, this trend has worsened.”
She said that the Indian government already imposes high taxes on fuels such as diesel and petrol, which ordinary citizens use on a daily basis.
Government policies reducing corporate tax rate in 2019, and increasing excise duty in 2020 have led to a decline in the total share of direct taxes to total revenues from 54.6% in 2019 to 46.6% in 2021.
Farooqui said regressive tax policies worsen gender inequalities as women tend to spend more on household items, the cost of which includes consumption taxes. “As the costs of living rise, the socio-economic conditions within patriarchal structures hit women even harder, as they have to choose unpaid care work over education, formal employment, and access to healthcare,” she said.
A People’s Manifesto: Tax the Rich, Not the Poor; Make Taxes Work for People and The Planet
Rey Abella, also from the DevFin program, gave an overview of APMDD’s tax and fiscal justice campaigns and the “Seven Demands” outlined in A People’s Manifesto: Tax the Rich, Not the Poor, Make Taxes Work for people and the Planet1. He said the People’s Assembly for Tax Justice held in October 2021 led to the consolidation of a comprehensive regional campaign agenda aimed at responding to emerging challenges.
“We really felt the effects of inadequate funding of public services,” he said. It was also around this time that the OECD was pushing for their “tax deal of the rich,” lowering minimum corporate tax rates to 15%, among others. “This would result in decreased revenues for developing countries,” he said.
The OECD tax deal, undemocratically decided by the world’s richest countries, proposes a “two-pillar solution.” One pillar provides a tax arrangement benefitting only the Global North. It proposes for corporations to be taxed only in countries where sales and consumption are made and not in countries, such as India, where goods are produced through the extraction of natural resources and exploitation of cheap labor. The second pillar aims to lower the minimum global corporate tax rate down to 15%.
Key issues which surfaced in roundtable discussions that followed included the massive rise in fuel taxes over the last two years. The high fuel costs inevitably impacted the price of essential commodities burdening low and middle-income Indian households with a steady increase in their daily costs.
Adding to this are the impacts of the Goods & Services Tax system. Micro and small businesses are forced to spend additional money and effort to meet the additional paperwork and bureaucracy required by the GST system.
Essential fishing gear is now taxed under the GST system, affecting the livelihood of fish workers. Under the earlier tax regime, fishing gear was exempt from tax.
On top of this, the GST Council, the body that decides tax slabs, lacked transparency and proper representation of marginalized people in the country.
APMDD members also spoke about the controversial Metro construction in the city of Kochi. People in the entire state of Kerala are being taxed for the Metro despite the project only serving a small population, particularly in the city of Kerala.
We, as members of civil society and mass organizations from different countries in Asia and other regions, come together in recognition of the urgency of transforming our tax and fiscal systems to make them ‘work for people and the planet.’ These have to be reoriented to turn away from blind subservience to corporate, profit-driven interests and towards the peoples’ agenda for economic justice and social transformation. At a critical time when tax revenues are gravely needed to fund essential public services and meet sustainable development targets, anti-poor tax policies and illicit financial flows have only deepened widespread inequalities within and among countries in the world
Fighting for survival amidst multiple crises of health, joblessness, violence and exclusion has become the “new normal” for many communities and sectors in Asia, with 89 million more plunged into extreme poverty and an average unemployment rate of 20% across the region in 2020. The social toll of the COVID-19 pandemic continues to be heavy for many countries with over-capacitated health systems, lower school completion rates, increasing hunger and malnutrition resulting from inadequate government responses and weakened revenue generation.
The historical imperative to correct imbalances and fundamental flaws of tax and fiscal systems at the national and global levels is undeniable. We commit to strengthening our campaigns and collective struggles towards these demandsfor tax and fiscal justice:
- Tax the Rich, Not the Poor!
While the vast majority of peoples in Asia continue to struggle for health, safety, and decent work, a small minority wallow in unimaginable wealth. 41% of billionaires in the world can be found in Asia, with the highest share vis-a-vis other regions with 8% of high-net-worth individuals involved in the health and technology-related businesses. Their combined wealth is estimated at US$ 4.7 trillion. This staggering figure is vastly underestimated, as revealed by the Pandora Papers. The Pandora Papers extensively documented the blatant circumvention of national and global regulations by wealthy political and business elites in order to hide profits and assets in offshore jurisdictions with more lax regulations on corporate taxation.
We firmly believe that governments must proactively step in to ensure that the wealth of billionaires – socially generated through labor and natural resources of our countries – must not be allowed to accumulate without shared social benefits. That is only right and fair especially when the poor are forced to bear unjust tax burdens.
We demand that governments take measures to adopt tax policies that will ensure that all incomes and profits of corporations and elites from both productive and financial activities are taxed. We call on governments to institute a progressive tax on wealth and accumulated assets of high net-worth individuals, and for countries around the world to establish cooperative mechanisms to strengthen the effective enforcement of wealth taxes by plugging loopholes that allow for illicit financial flows of untaxed wealth.
- Make Taxes Work for Women and Other Marginalized Sectors
Across Asia, tax and fiscal systems are riddled with gender biases and discriminatory policies that deepen inequalities and reinforce economic and social exclusion. Taxation can be instruments for advancinggenderand economic justice only when these biases are firstaddressed.
Women face multiple and intersecting forms of discrimination, take on a disproportionate share of paid and unpaid care work, face heightened exposures to violence, and have to contend with unjust tax burdens.
Women’s share of unpaid care work went up as much as ten times more than men during the pandemic lockdowns when state responsibilities for children’s education and family health fell on women’s shoulders. Women’s vast contributions to economic activity through social reproduction are rendered invisible by governments and economic systems that narrowly focus on production. Women’s unpaid care work must be proactively recognized and redistributed by the state by strengthening public services and rewarded through the provision of tax credits and other support systemsfor women.
Despite spending a greater share of incomes on household necessities such as food, childcare, and privatized utilities, tax burdens disproportionately fall on women, especially those from poor and marginalized sectors. Tax systems that heavily rely on regressive taxes on consumptionsuch as Value Added Tax (VAT), Goods and Services Tax (GST), and excise taxes on fuel and other household necessities – rather than taxing wealth and income-- are regressive and unjustly burdensome for women and other marginalized sectors
Communities of indigenous and tribal peoples in many parts of Asia are often sites of corporations’ wealth extraction from their land and natural resources. Since many essential goods and services are out of reach in rural areas, regressive excise taxes on fuel and mineral products create additional barriers for access to transportation, cooking, and housing for these communities.
Workers from indigenous and tribal peoples in Asia are also 25% more likely to be employed in the informal sector, while those formally employed earn 18.5% less than non-indigenous workers. On top of landlessness and limited access to public services, workers from these marginalized backgrounds are forced to pay the same level of income taxes, contributing to higher rates of intergenerational poverty.
We believe that gender biases and other discriminatory policies in tax and fiscal systems must first be removed or corrected before taxation could be considered as a tool for advancing gender justice and reducing inequalities.
We must press upon governments to reclaim public control of essential social services, generate more public revenues and increase allocation of funds for public services, and rechannel funds away from debt servicing and militarization towards the provision of public services to ensure that people’s rights and needs are met.
The Pandora Papers estimate that profits of corporations and wealth of elites held in offshore accounts may be as massive as one-third of global GDP. Legal instruments of tax havens have prevented these illicit financial flows from being subjected to public scrutiny or taxation in developing countries where wealth is generated, and where corporate tax abuses significantly erode public revenues. We must strengthen financial transparency and accountability mechanisms, ensure the full disclosure of beneficial ownership, and strengthen civil society-led initiatives to hold governments enabling IFFs to account.
Tax competition in the region has heightened with governments’ economic “recovery” programs, as seen in recent initiatives to lower corporate tax rates and maintain liberal tax incentive regimes. These have opened several loopholes for corporate tax abuses by multinational corporations (MNCs) through trade mis-invoicing, profit-shifting to lower-tax jurisdictions, and taking advantage of overlapping fiscal regimes and tax treaties. To compel MNCs topay their just share, we must end tax competition in the region and globally by instituting a global minimum corporate tax rate of 25-30%, closer to the recommendation of the United Nations High-Level Panel on Financial Accountability, Transparency, and Integrity (UN FACTI), and will be beneficial to developing countries. We must also call on governments to conduct an audit of all tax treaties and incentives to ensure that all agreements are aligned with domestic resource mobilization targets to fund peoples’ urgent needs.
- Advance Tax Justice in the Extractive Industry!
The social, economic, and environmental impacts of the extractive industry have long been the focus of many community struggles and campaigns of people’s movements and civil society organizations. On top of the irreversible damages to the environment and in many cases to people’s health, the mining industry is also rife with corruption, tax abuses and other types of illicit financial flows.
Economic restrictions imposed by governments since 2020 have been utilized as smokescreens by mining corporations to expedite the approval of projects despite peoples’ resistance. Corporations in the extractives sector have historically benefitted from privileges of long-standing tax holidays and preferential fiscal regimes applicable to mineral resource extraction. Tax planning and avoidance of corporations, especially MNCs in extractive industries, result in massive erosion of public revenues and intense profiteering at huge costs to people, communities, workers, the economies and environment of Asian countries.
We must urgently institute and enforce tighter social, financial and environmental regulations and sanctions over the extractives sector; scrap tax incentives granted to extractives industries and curb illicit financial flows; impose resource taxes on the export of raw materials from mining and other extractivist activities; and uphold the rights of communities and women affected by mining and other extractivist activities, including their right to defend their communities.
- End Inequalities in global tax rules and rule-making! UN Tax Body Now!
Through the OECD-G7-G20 “tax deal of the rich,” the world’s richest countries and biggest economies are seeking to bind our tax systems in a more vicious race to the minimum as they benefit in a much greater degree from the proposed distribution of taxing rights and the meager global minimum tax rate of 15%. Digital services taxes (DSTs) proposed in the ‘tax deal of the rich’ also pose a risk of reproducing the regressive impacts of VAT in our countries as the costs will certainly be passed onto consumers. As peoples of developing countries that have long been impaired by the fiscal stranglehold of underfunded public services and regressive taxes, it is imperative for us to strongly reject these false solutions and urge our governments to take leadership in forwarding a just, progressive, and democratic alternative.
To meet peoples’ urgent needs, we need fiscal systems and global tax rules that serve to reduce the entrenched inequities and injustices of tax norms and rule-making on the national and global levels. Negotiations and decision-making on global tax rules must be done within the auspices of the United Nations, in a platform where all countries sit as equals and voices of civil society can hold governments to account. We reiterate our call for the establishment of an inter-governmental mechanism on tax matters – a UN Tax Body -- that is genuinely inclusive, democratic, transparent and accountable, where all countries sit at the table as equals and where the voices of the peoples of the Global South and of marginalised sectors, those who are most affected by inequalities in global tax rules, are heard.
- System Change, People First Before Profit!
We strongly believe that rebuilding broken tax and fiscal systems is an urgent task, but it cannot be achieved only through minor fixes and band-aid solutions such as those proposed in the “tax deal of the rich” and by international financial institutions like the International Monetary Fund (IMF) and the Asian Development Bank’s Asia-Pacific Tax Hub. Tax and fiscal justice can only be achieved by addressing fundamental flaws in tax and fiscal systems.
Our campaigns for tax and fiscal justice is grounded on a vision for economic justice and must serve a bigger fight for system change – for thoroughgoing changes and transformation of economic systems, of gender and class relations, as well as a fundamental restructuring of the relationship between production and the environment.
Our struggle for tax justice must also be integrated with a systemic shift away from extractivism – the exploitation, plunder and destruction of natural resources to the huge detriment of people, communities and the planet – which is primarily driven by corporations, especially MNCs, in collusion with local elites, governments, and international financial institutions (IFIs).
Our vision for economic justice is founded on a fundamental reorientation towards prioritizing peoples’ needs and a rejection of neoliberalism and unbridled capitalism, reclaiming the central role of governments and civil society in regulating market and social relations.