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WHAT CAN BE DONE
fiscal policies that tackle inequality. There is also strong recognition among
credible actors that the global tax system is not working.
Sailing against strong winds
Almost nine months after Macky Sall’s election as President of Senegal in
2012, the country adopted a new tax code to raise revenue to finance public
services. This reform simplified the tax rules, increased corporate income tax
from 25 to 30 percent, reduced personal income tax for the poorest and raised
it by 15 percent for the richest. While more reform is needed in Senegal, the
participatory approach taken –including many rounds of consultation with
representatives from the business community and civil society – has opened
the door for other progressive reforms that can tackle inequality, notably a
review of the mining codes to tackle low royalties paid by mining companies. 401
In 2005, the newly elected government of Uruguay, led by President José
Mújica, set about reforming the country’s regressive tax system. Consumption
taxes were reduced, coverage of personal income taxes was broadened,
corporate income taxes were consolidated, and some taxes were discontinued.
As a result, the tax structure was significantly simplified and tax rates on the
poorest and the middle class were lowered, while the top earners saw their
rates rise. Today, inequality measured in after-tax income is starkly lower. 402
Despite this domestic progress, however, Uruguay remains a global tax haven,
facilitating billions in tax avoidance elsewhere. 403
These reforms show that where there is political will, policies can move in the
right direction, ensuring that those who have more – corporations and rich
individuals – pay more taxes.
International consensus is shifting
In the face of constrained budgets and public outrage, international consensus
is also shifting. Despite the limitations of the BEPS process described above,
the fact that the G8, G20 and OECD took up this agenda in 2013 demonstrates a
clear consensus that corporate taxation is in need of radical reform. The OECD’s
analysis also demonstrates that there is a need to redefine international rules
in order to curb profit-shifting, and to ensure companies pay taxes where
economic activity takes place and value is created. 404
The IMF is also reconsidering how MNCs are taxed, and in a recent report
recognized the need to shift the tax base towards developing countries. 405
They also acknowledged that the ‘fair’ international allocation of tax revenue
and powers across countries is insufficiently addressed by current initiatives.
OECD, USA and EU processes are also making progress on tax transparency
to lift the veil of secrecy that surrounds the global tax system. European
institutions have led the way by adopting a reporting system for European
banks, agreeing that information, such as where they have subsidiaries, how
much profit they make and where they pay taxes, should be public information,
especially after many of these banks were rescued with public money. The
G8 has made progress on registries of beneficial ownership, with some
public registries moving ahead. And a new global standard for the automatic
exchange of tax information has been agreed by the G20.
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