by Pooja Rangaprasad and Jeannie Manipon
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.