Development
Poor losing US$ 50bn a year into financial "black holes"

afrol.com, 23 June - Money that is desperately needed to fight poverty in the world's poorest countries is disappearing into financial "black holes" created by tax havens and countries that maintain harmful tax regimes.

In a new report, Oxfam argues that poor country governments are being denied at least $50 billion a year because large corporations and rich individuals are escaping their tax obligations. 

The loss is equivalent to six times the estimated cost to getting every child in the world into school, and almost three times the cost of achieving universal primary health care. Revenue losses associated with tax havens, along with unsustainable debt, deteriorating terms of trade and declining aid, are crippling human development prospects in poor countries, the report says.

Oxfam is calling for a "poverty focused" rethink of the system that provides tax sanctuary for elite corporations and individuals. "Tax havens exist simply to help the wealthy thrive. No thought is being given to the poor they weaken," says Oxfam Head of Advocacy Phil Bloomer.

Tax havens are "intimately connected" with the causes of poverty. The report says: 

· Tax havens allow rich companies and individuals to avoid tax, to under-report profits and to move vast sums of capital. This limits the ability of governments, especially in poor countries, to raise revenues and invest in social services. Poor countries have been forced to compete in a race to the bottom to offer foreign investors ever-lower tax rates. 

· Many tax havens provide sanctuary for the proceeds of crime and corruption. For instance, much of the $55 billion looted from Nigeria remains in European bank accounts today. Meanwhile, one in five Nigerian children die within five years of their birth due to the lack of basic health services. 

· Tax havens are central to the operation of global financial markets, which have been defined by currency instability, and rapid surges and reversals of capital flows. This volatility contributed to the Asian financial crisis; nearly three years on, the economies of Thailand and Indonesia continue to struggle under the public debt the crisis created. 

Markets have globalised, the report says, allowing the movement of huge sums of money to tax regimes most favourable to rich companies and individuals, and yet tax structures remain largely national. The result is increased scope for tax avoidance and increasing pressure on government revenues.

All industrialised countries now recognise the threats posed by tax havens, but their response has been inadequate. In particular, they have targeted smaller haven like Jersey, the Cayman Islands, Bahamas and the Seychelles, but ignored the activities of centres such as the City of London, New York, Singapore, Hong Kong and Switzerland. "If there is going to be a blacklist, these centres should figure prominently. They should be named, shamed and changed as well," Bloomer says.

Oxfam is calling for: 

· A multilateral approach on common standards to define the tax base to minimise the opportunities for tax evasion and avoidance.

· The international community should agree to tax multinational companies on a global unitary basis, with appropriate mechanisms to allocate tax revenues internationally. 

· A global tax authority could be set up to ensure that national tax systems do not have negative global implications. 

· All countries to support an International Convention to allow for the recovery and repatriation of stolen public money. 

· Multinational companies, which are now being pressured into abiding by internationally agreed labour and environmental standards, should also similarly be required to refrain from harmful tax avoidance. 

· Smaller "tax haven" economies to be helped to diversify away from reliance in harmful tax practices. 

· Effective information sharing deals to be agreed between governments, to help combat investments in the proceeds of crime. 

Copies of the report Tax Havens: the Hidden Billions can be obtained from Oxfam, on telephone +441865-311311 or viewed and downloaded from their website.

Source: Oxfam

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