WE CONDEMN the strongarm tactics deployed by the International Monetary Fund (IMF) to force Sri Lanka to cooperate with the OECD’s illegitimate Base Erosion and Profit Shifting (BEPS) framework. We stand with the people of Sri Lanka in opposing the IMF’s oppressive “bailout,” and we uphold their sovereign right to impose taxes where profits are made from the operations and assets of all corporations within its borders.
IMF pressure comes in the midst of sharply unequal debt restructuring negotiations, with Sri Lanka subjected to the Fund’s lending program conditionalities attached to its latest $2.9 billion loan. These include cutting salaries of the public sector, eliminating subsidies without providing safety nets, increasing regressive taxes, and the use of the Employees’ Provident Fund (EPF) for local debt restructuring. These measures will deepen the severe economic difficulties faced by the Sri Lankan people today. At the same time, the IMF is pressuring Sri Lanka to drop a key measure for revenue mobilization when it is urgently needed, which is to slap digital services taxes on tech giants registered in rich countries or in tax havens.
In 2021, Sri Lanka, along with Pakistan, Kenya, and Nigeria, rejected the Two-Pillar solution offered by the OECD’s Inclusive Framework on Base Erosion and Profit Shifting. They are right to do so. We have long pointed out that the BEPS framework amounts to nothing more than a Tax Deal for the Rich, and reinforces the structural disadvantages faced by the Global South within the current global tax and fiscal architecture.
Pillar One of the OECD’s BEPS framework hands taxation rights on excess and non-routine profits over to countries where multinational corporations are headquartered, not in countries where their assets and operations are actually located. This puts Global South countries at a disadvantage, locking them out of raising revenues from wealth located and generated from within their own borders.
Pillar Two of the BEPS framework seeks to set a minimum global corporate income tax (CIT) rate of 15%, a rate far lower than Sri Lanka’s current 30% CIT rate. This would put pressure on Sri Lanka and other Global South countries to race against each other to reach the OECD’s 15% mark, shrinking much-needed revenues in favor of multinationals and large corporate entities.
The OECD and G20 are exclusive clubs dominated by the agenda and interests of the world’s richest economies. They have no business setting global tax and fiscal standards;their interests run fundamentally at odds with the needs and rights of countries and peoples of the Global South, most especially Sri Lanka, a country struggling to overcome an immense economic and social crisis.
A history of flawed fiscal and tax policies contributed to producing the current crisis in Sri Lanka. According to a 2017 report by the International Centre for Tax and Development, the massive contraction of tax revenues across decades is the result in no small part of policymakers’ deliberate decision to whittle down taxes and favor corporate interests through tax cuts and incentives. The Tax Justice Network reports that Sri Lanka’s tax lost to tax havens each year amounts to $403,204,598, of which $397 million are lost to global tax abuse committed by multinational corporations. The total amount of lost tax is equivalent to 27.63% of the health budget and 19.98% of education spending. Furthermore, systemic corruption on the part of the country’s elite have contributed to massive illicit financial flows out of the country and into tax havens, as exposed by the Pandora Papers. This has contributed to a highly unequal distribution of wealth in Sri Lanka, where the richest 10% hoarded 30.8% of the country’s income share prior to the COVID-19 pandemic, leaving the bottom 10% with just 3.1% of income share.
THE IMF AGAIN lays bare where its interests really lie — neither in helping the Sri Lankan people back on their feet again nor in building a self-reliant economy for Sri Lanka. It wields taxation, borrowings and conditionality as weapons to shape economies and finance along neoliberal lines by privileging corporations and the ultra-rich while passing on the burden of revenue mobilization to the mass of working people through indirect taxes. The Sri Lankan government has already raised power tariffs and income taxes for professionals, and is furthermore planning to make use of workers’ deposits into the country’s public social security institution, the Employees’ Provident Fund (EPF), as part of its attempts to meet IMF loan conditionalities. These harsh austerity impositions have been justly met with protests and strikes by Sri Lankan workers.
Conditions are rife with opportunities for the Sri Lankan government to resist the OECD, the IMF and other global rule-makers that impinge on the sovereign taxing rights of the Sri Lankan people. Hiking income taxes should fall heavily on corporations and wealthy individuals, and not ordinary citizens and employees. Raising VAT only deepens inequalities, as this eats up a bigger share of already reduced incomes of the general population, women who are often in low paid service sectors. The clearest expression of resistance to the impunity of the IMF and the OECD is to shift the burden of taxation equitably through progressive tax policies that target the profits and assets of the richest individuals and corporations, such as through a wealth tax, and plug the loopholes that enable illicit financial flows and the continued looting of the people’s purse.
Advancing progressive taxation is a vital step towards comprehensively reforming a global tax system and financial architecture that enables illicit financial flows and wealth hoarding by corporations and elites, and encourages increasingly bigger shares of revenues to be spent on debt servicing rather than peoples’ needs. We need a UN Tax Convention that is responsive to the needs and interests of all countries, especially those in the Global South who for a very long time have borne the brunt of a flawed global tax system. We need a UN Tax Body that secures the right of countries to tax assets, entities, and transactions within their borders in order to guarantee their citizens’ rights to public services and a just transition to green energy.
Sri Lanka and many other Global South countries in the grip of IMF lending programs and conditionalities also need a multilateral, transparent and inclusive debt resolution mechanism where borrowing governments, and not only lenders have a seat at the table and where public debt matters are discussed democratically, and not in the narrow, opaque corridors of the Fund and other lending institutions.
The OECD’s BEPS framework has already lost ground last year to a Global South-led UN General Assembly resolution to convoke a UN Tax Convention in the near future. The upcoming Convention cannot be allowed to be used as an opportunity to sneak the OECD’s Two-Pillar solution of the BEPS framework into the work of the UN Tax Body.
WE CALL on the Sri Lankan government not to give in to pressure from the IMF to back the OECD’s BEPS framework and to implement austerity measures. It must put its people and their rights first and heed their demands for progressive tax and fiscal reforms. Priority agenda should be rebuilding towards a just, equitable and sustainable economy, moving away from economic paradigms and policies that have only spelled disaster for the people and the entire country.
WE STAND in solidarity with the people of Sri Lanka whom the IMF has brought to this very point of vulnerability and misery after 16 lending programs since 1965. We are one with their struggles in demanding fiscal justice and asserting long-term, durable solutions to deepening, impoverishment and inequality.
12 August 2023
SIGNATORIES
Asian Peoples’ Movement on Debt and Development (APMDD)
Centre for Environmental Justice (CEJ), Sri Lanka
South Asia Alliance for Poverty Eradication (SAAPE)
South Asia Just Transition Alliance
Migrant Forum in Asia (MFA)
Focus on the Global South
Bangladesh:
Bangladesh Krishok Federation
COAST Foundation, Bangladesh.
India:
Mines, Minerals & People, India
Growthwatch, India
National Hawker Federation, India
All India Women Hawker Federation, India
Civil Society Women Organization, India
Indian Social Action Forum – INSAF
Environics Trust, India
Himalaya Niti Abhiyan, India
People for Himalayan Development, India
Indonesia:
Aksi! for Gender, Social and Ecological Justice, Indonesia
Malaysia:
Monitoring Sustainability of Globalisation (MSN), Malaysia
Nepal:
TAFJA, Nepal, Kathmandu, Nepal
All Nepal Peasants Peasants Federation, Nepal
Tax and Fiscal Justice Alliance, Nepal
National Alliance of Right To Food Network, Nepal
Food Sovereignty and Climate Justice Forum, Nepal
Youth Peasants Organization, Nepal
Woman Peasants Association, Nepal
Nepal Agriculture Labour Association
Dalits and Landless Peasants Organisation, Nepal
Pakistan:
Pakistan Fisherfolk Forum
Pakistan Kissan Rabita Committee
All Pakistan Workers Confederation
All Pakistan Carpet Workers Union
All Pakistan Textile Workers Union
Pakistan Bhatta Mazdoor Union
Progressive Labour Federation – Pakistan
Climate Watch Pakistan
Tameer e Nou Women Workers Organization – Pakistan
Sawera Foundation – Pakistan
Cholistan Development Council Pakistan
Home Net – Pakistan
South Asia Partnership Pakistan
Pakistan Kissan Kerkeela
Labour Education Foundation
Crofter Foundation
Sawera Foundation – Pakistan
Cholistan Development Council Pakistan
Home Net – Pakistan
South Asia Partnership Pakistan
Philippines:
Sanlakas, Philippines
Oriang Women’s Movement, Philippines
Freedom From Debt Coalition, Philippines
Thailand:
Climate Watch Thailand, Thailand
Women’s Alliance for Climate Justice, Thailand
Forests and Farmers Foundation, Thailand
Thai NGO Committee on Agrarian Reforms and Rural Development, Thailand