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Law360 (May 28, 2020, 8:18 PM EDT) -- Making tax systems more progressive has become an imperative as countries consider how to rebuild their pandemic-battered economies, and urgency could make this goal politically salable, a panel of experts agreed Thursday.
With economic inequalities deepened by the novel coronavirus outbreak and its attendant lockdowns, developing countries especially see tax overhaul as crucial to helping sustain their already underserved populations, the panelists from civil society groups and government said.
Rich nations should understand that illicit financial flows do harm to real people in poorer countries by hindering economic development, Samuel Makwe, a counselor at Nigeria's mission to the United Nations in New York, told a webinar organized by the Independent Commission for the Reform of International Corporate Taxation.
"Whether it's corruption, organized crime, exploration of natural resources for international trade or harmful tax practices, one thing that is central is that [illicit financial flows] divert money from public priorities and hamper government efforts to mobilize their most needed resources," Makwe said.
"The availability of fiscal space and financial means is definitely going to be further constrained as the epidemic unfolds in developing countries," said Marilou Uy, director of the Group of 24, which coordinates developing countries on monetary and development issues.
Uy, while pointing to some poorer countries' commitment of up to 10% of gross domestic product to pandemic relief, said domestic measures in the face of this worldwide crisis aren't enough.
"The current time presents an opportunity for more progressive fiscal measures," she said, adding that developed and developing countries alike have boosted cash transfers to help their poorest, most vulnerable citizens, as well as small businesses, survive.
"On the revenue side, nontraditional progressive tax measures are also getting more traction," Uy explained. She pointed to some governments in Latin America and elsewhere that have started debating the enactment of wealth taxes on high-earning individuals.
The political environment for pushing through taxes targeting the rich remains difficult, but the appeal of such measures is growing stronger as unemployment soars due to the coronavirus pandemic, Uy said. Developing country governments, however, will likely continue to look to richer, more powerful counterparts for guidance on enacting progressive tax policies, she added.
With the politics of a potential global tax overhaul shifting as a result of the pandemic, the panelists agreed that all governments should seek to make the tax dealings of multinational corporations as transparent as possible. But Alex Cobham, head of the Tax Justice Network, a U.K. tax-fairness advocate, faulted a lack of leadership in this area.
Pointing to debates pitting "revenue now" proposals for national taxes on multinationals' digital operations against longer-term levies on excess corporate profits abroad, Cobham questioned whether a multilateral approach is best led, as it is currently, by the Organization for Economic Cooperation and Development.
"I think we need to ask ourselves, 'Is this, finally, the moment to give up on the hope of the OECD delivering any kind of genuine, inclusive progress?'" Cobham told the panel.
He cited research by the Tax Justice Network that concluded that the OECD's so-called Pillar One agenda for redistributing taxation rights was weak compared with a proposal from the Group of 24 developing countries. In the end, the OECD pushed through its own approach, prompting governments outside the Paris-based organization to wonder if their concerns are being heard, Cobham said.
"There is a very clear disproportionate access to information that richer countries in North America and Europe have" with regard to multinationals' taxes and banking activities, said Neeti Biyani, a consultant with the Centre for Budget and Governance Accountability, a research group in India.
"If we can fix this problem of access to information and distribute this access very evenly among all countries, no matter rich or poor, I think we have an absolute fair chance" at resolving unequal distribution of taxing rights, she said.
--Editing by Joyce Laskowski.
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