This is a tale of two kinds of tax-avoiders: one, corporate; the other, personal. Two-thirds of the total $347.6 bn comes from MNCs playing an elaborate game of offshore hopscotch to underpay taxes. The remaining third, $144.8 bn, stems from HNIs hiding their treasure chests in tax havens.
So, who’s enabling this grand evasion? Eight countries, the ‘Elite Eight’, are at the forefront: Australia, Canada, Israel, Japan, New Zealand, South Korea, Britain and the US. Together, these economic heavyweights are responsible for nearly half of global tax abuse losses.
Ironically, the Elite Eight not only enable tax abuse but also suffer from it, losing $177 bn annually to tax-dodging. And still they vehemently oppose the proposed UN Tax Convention, which aims to create an inclusive global tax system by shifting international tax rule-making from OECD to UN, giving all countries, especially developing ones, a greater voice.
In the August 2024 UN Tax Convention vote, 44 countries abstained – countries that are collectively losing $189 bn annually to tax abuse. Meanwhile, 110 countries, including India, voted in its favour, even as they still lose $123 bn annually. The situation is almost comedic: like refusing to fix a leaking roof while complaining about puddles inside.
Why the opposition? The US, for example, resists the convention, fearing loss of control over global tax policy, which it currently influences through OECD. Critics argue this resistance prioritises corporate interests over equitable global reform.The ‘State of Tax Justice 2024’ report doesn’t shy away from tough questions. Why are these losses so high? Why are the biggest enablers also the biggest losers? Why does tax abuse persist despite global outrage?The answers are straightforward. MNCs shift profits offshore because they can. Tax havens offer sweetheart deals, and loopholes remain conveniently unaddressed. HNIs stash their cash abroad, while governments are complicit, overwhelmed or apathetic.
The report also highlights the plight of countries like India, where effects of global tax abuse are particularly devastating. India loses over $10.3 bn (about ₹75k cr) annually to global tax abuse. This represents 0.41% of its $3 tn GDP, with $10 bn lost to corporate tax abuse and $200 mn to individual tax evasion.
The social impact of these losses is profound. They amount to 44.7% of India’s health budget, and 10.68% of its education spending. This lost revenue could fund essential services like healthcare, education and infra.
India is particularly vulnerable to illicit financial flows through outward FDI, with Mauritius, Singapore and the Netherlands being key contributors to this vulnerability. The proposed UN Tax Convention could be a game-changer for nations like India, levelling the playing field and addressing systemic inequities in the global tax system.
So, where does that leave us? One, waiting for another vote this month, when governments will decide whether to enter formal negotiations on a UN tax convention. Two, negotiations. Because nothing says urgency like prolonged bureaucratic wrangling.
If governments truly believe in equality, fairness and funding public goods, they’ll back the UN Tax Convention. The UN vote represents a fork in the road – a chance to confront a system that prioritises profits over people.
At its core, tax abuse is more than a numbers game. It’s also a justice issue that strikes at the heart of fairness, equality and shared responsibility to fund a better future. It’s time to act, and act decisively.
The writer is former principal DG of income-tax (administration), New Delhi