DEVELOPMENT FINANCE

This comic strip is inspired by real stories  of APMDD members across the region.  As COVID-19 lockdowns brought already marginalized communities to extreme crises of survival, people came together in the spirit of solidarity. Community pantries
and kitchens, the delivery of basic necessities to the elderly and others who must keep indoors, among other community-led initiatives,  are testament to peoples’ solidarity.

People’s solidarity, however strong and effective,  is not a substitute for the State’s responsibility to provide essential public services, especially  amidst widening inequalities in Asia. People living in extreme poverty, barely affording a single meal in a day, are estimated to have increased to over 100 million in Asia. Gender inequalities have also deepened with heavier demands
on women to provide a disproportionate amount of time on unpaid care work in the midst of greater female unemployment
and widening gender wage gaps. Ironically, Asia and the Pacific has also seen  rapid growth in wealth by individuals
and corporations amounting to over US$ 7.5 billion in 2020 alone. 

Governments have to step up to fulfil their core responsibility of providing #PublicServices,  infrastructures and social protection. The impact of the pandemic could have been less horrific if governments had not been slashing essential services
to give way to privatized services and deregulation for decades. While the burden of financing these social services has been placed on regressive taxes that gravely affect women and other marginalized sectors, governments have lost billions in potential revenues for public services  from policies that enabled corporate tax abuses and illicit financial flows.

The historical and structural roots of inequalities run deep, exacerbated and reinforced by flawed fiscal and tax systems, rules
that need to be ‘rewritten.’ 

It is time to  #RewriteTheRules for #TaxJustice and #GenderJustice. Indeed, it is time to  overhaul political and economic systems that bring crises worldwide  and misery to millions of people. People’s solidarity is the key to advancing a transformative agenda 
to overcome crises and take another path for #systemictransformation.

#GlobalGoals #MakeTaxesWorkForWomen #8for8

 

 16 July 2021

Amidst the multiple crises in health, the economy, and the climate, peoples in Asia continue to bear the social and economic costs
of fundamental flaws in national and international tax systems. Illicit financial flows continue to strip away potential revenues critical for financing health and social services most needed for our survival, safety, healing and rebuilding.  Tax competition, wide-ranging corporate tax incentives, and barriers to taxation of extractives and digital services remain rife in the region. The escalating race to the bottom in corporate income tax regimes combined with corruption, weak transparency frameworks and regulatory mechanisms have enabled multinational corporations and domestic elites to siphon hundreds of billions out of our countries.

The COVID-19 pandemic and its impacts present a historical opportunity to reform global corporate taxation and transform our tax systems to make them more responsive to the needs of people and the planet. It is tragic that the solutions offered by the world’s elite countries only serve to reinforce inequalities in the global tax regime that have long excluded the voice and interests
of developing countries and peoples in the Global South.

Finance leaders of G20, a forum among some of the world’s richest countries, recently endorsed the OECD’s Two-Pillar “Solution” under its Inclusive Framework on Base Erosion and Profit-Shifting (BEPS). The OECD/G20 tax deal rests on two pillars: Pillar One is intended to allocate taxing rights on “excess and non-routine” profits to countries where large multinational corporations locate and profit from sales, while Pillar Two stands on an unambitious proposal of setting the global minimum corporate tax rate
to a meager 15%.

Peppered with rhetoric about strengthening domestic resource mobilization in the Global South, the two-pillar approach is nothing more than an illusory fix that undermines our long-standing demands for a just and democratic transformation of the global tax policy architecture.

The extremely narrow base and the unjust allocation of revenues in Pillar One robs developing countries of our sovereign power to tax multinational corporations within our borders. Hidden beneath a complex technical facade is a deeply regressive arrangement that only covers the biggest 100 multinational corporations and their “residual profit margins''. The exceptionally high threshold set by Pillar One lets loose a vast majority of MNCs shifting profits out of developing countries. Furthermore,
by privileging countries where MNCs are headquartered and the taxation of profit margins from sales, the tax deal precludes
the taxation on profits from employment and assets which are central to value extraction of MNCs from the Global South.
It also creates an abstract and unrealistic separation between routine and residual profits, enabling multinational corporations to take advantage of loose regulations on transfer pricing for a lion’s share of profits generated globally.

The proposed global minimum corporate tax rate of 15% gravely falls short of the objective to raise revenues in developing countries. The UN Economic Commission for Asia and the Pacific (UN ESCAP) proposed that developing countries in Asia will need public investments amounting to USD 1.5 trillion every year to achieve the Sustainable Development Goals for Achieving
the 2030 Agenda. The OECD proudly declared that their proposed rate of 15% is set to generate USD 150 billion in annual additional revenues -- this is a measly figure beside an estimated USD 760 billion in additional revenues from a 25% global minimum effective tax rate. Noting the recommendation of the United Nations High-Level Panel on Financial Accountability, Transparency and Integrity (UN FACTI), setting a global minimum tax rate lower than 25-30% will fail to make any significant impacts on revenue generation in the Global South.

A deal anchored on a global corporate minimum tax rate of 15% sets a dangerous precedent for a global race
to the minimum. Justified as measures to promote “economic recovery”, several laws have been passed by governments in Asia since the beginning of the pandemic to further reduce baseline corporate income tax rates under the pretext of stimulating
the economy, but in reality, keeping pace with declining global and regional averages. Pillar Two will only accelerate this process under intensified pressure from domestic and multinational business lobbies. By setting a global minimum precipitously close
to nominal rates of tax havens, the G7 and OECD tax deal triggers an unambiguous policy signal to the rest of the world
that lowering corporate income taxes to 15% is not only acceptable but will be the gold standard.

Negotiations on global tax agreements have no place in the undemocratic and unequal platforms of the G7, the G20,
and the OECD. Because membership in these informal arrangements is decided entirely by countries’ gross national incomes,
it is not surprising that the benefits of the two-pillar proposal are highly skewed towards the interests of the Global North.
Rich countries and legislative lobbies for multinational corporations are attempting to expedite the ratification of the agreement
by governments in order to forestall demands for higher global minimum tax rates and a just allocation of taxing rights.
This underlines the urgent responsibility of governments in the Global South to assert equal rights to decide on global tax rules
in an intergovernmental platform under the auspices of the United Nations.

As peoples and organizations committed to the transparent, accountable, and just restructuring of tax systems, we call on civil society organizations and governments in Asia to mount a strong resistance against the growing pressures by the G7 and OECD
for the Global South to adopt the flawed, unequal, and regressive two-pillar approach.

We call on governments in Asia to:

 REJECT the OECD/G20 global tax deal and other initiatives that reinforce inequalities in decision-making around global tax rules or serve only the interests of multinational corporations and a few elite countries

WORK FOR progressive, transparent, just, equitable and democratic tax systems and policies

PUSH TOWARDS the formation of a genuinely inclusive, democratic, and transparent intergovernmental mechanism Tax Body under the auspices of the UN.

READ MORE: Press Release – Civil society rejects “false solutions” in the OECD/G20 tax proposals

On July 10 2021, the G20 Finance Ministers and Central Bank Governors concluded their third meeting with a resounding endorsement of the unambitious and undemocratic two-pillar solution of the G7 and the OECD. The G20 endorsement is the latest rubber stamp to the agenda dominated and led by the Global North to redefine global tax rules exclusively for their own benefit. While painting the illusion of plugging foregone revenues, the G20 and the OECD’S two-pillar proposal is a false solution that opens more loopholes for tax abuses than it closes. The consequence of the OECD/G20 agreement is strikingly simple – it undermines the calls of peoples from the Global South for a comprehensive, democratic, and just system of global corporate taxation.

The so-called “Inclusive” Framework rests on the preservation of skewed global tax rules that have long favored the profit-driven interests of MNCs and the agendas of the Global North where they are headquartered.  It props up the pillars of inequality and exclusivity that deprive developing countries of the resources needed for sustainable and transformative development, denying their right to stand on equal footing in decision-making on global tax rules. The two pillars laid out in the OECD’s agreement consist of a proposed global minimum corporate income tax rate of 15% and a system for taxing large multinational corporations above a very high profit threshold, which gives priority of reallocating tax revenues to countries where MNCs are headquartered.

Setting the global minimum corporate tax rate at 15% only generates a paltry amount of tax revenues and largely benefits countries in Western Europe and North America, as the global average of corporate tax rates in developing countries is much higher at 25%. This triggers an even more dangerous race to the bottom where developing countries may be pressured to adopt the G20/OECD’s minimum rate, further eroding their rapidly dwindling tax bases.

Complementing this inadequate rate is another false solution that narrows its coverage down to a small number of large MNCs whose taxed profits can be redistributed to countries where sales are made. Not only does this provide a loophole for large MNCs to declare a lower share of their profits as “non-routine,” it also disallows developing countries where assets and labor of at least 6,000 multinational corporations are located from reaping their just share of taxed profits. The two-pillar ‘solution’ presented by the G20/OECD, an exclusive circle where the agendas of the Global North dominate, poses a barrier to the longstanding demands of developing countries for a just system of allocating taxing rights and for taxing multinational corporations’ profits. 

That the G7, G20, and the OECD sing the same tune is unsurprising: not only do they represent the interests of the richest populations in the world, MNCs that stand to benefit from maintaining the highly unequal tax system also reside within their borders. Membership to the OECD’s so-called ‘inclusive’ framework is advertised to developing countries to present a semblance of diverse representation. However, the process and outcome of OECD meetings time and again reveal the fundamental flaws and power imbalances inherent to the framework. 

Tax justice advocates from all countries must strongly reject this latest ‘false solution’ by the G20/OECD and other initiatives that stand in the way of thoroughgoing reforms needed to make tax systems and policies more responsive to people’s needs and rights. To dismantle the pillars of inequality and exclusivity, we must resolutely advance the agenda of transforming the global tax system and demand for a truly inclusive and democratic  inter-governmental mechanism under the auspices of the United Nations where all countries stand on equal footing.

As the global pandemic ravaged countries in Asia, the region lost at least 81 million jobs and US$1.7 trillion

in household incomes.¹

In the face of these intersecting crises, several governments of developing countries hastily chose to bail out corporations 
as a priority before people in their so-called “economic recovery” programs. Tax breaks, among many pro-business  stimulus programs that disenfranchised peoples of urgently needed social safety nets and public services, became governments’ policy instruments of choice.

This was revealed in the report Towards a People's Recovery: Tracking Fiscal and Social Protection Responses to Covid-19 in the Global South published by the Financial Transparency Coalition.²

The People's Recovery Tracker examined stimulus measures of nine countries in the Global South – with Nepal, Bangladesh and India in Asia – and found them grossly inadequate, unresponsive and ineffective to address peoples’ demands to curb hunger and extreme poverty during the pandemic.

Of the COVID-19 recovery measures announced by the countries examined, 63% or at least US$51.4 billion of budgets
for economic recovery went to large corporations. Meanwhile, the poor and the vulnerable were left to fend for themselves.

Below are three ways corporations enjoyed a privileged status from bailout packages:

1) Corporations were allowed to launder money, reduce contributions to social protection programs.

Of the nine countries examined by the People's Recovery Tracker, none may compare to Bangladesh and the measures
it took to provide economic stimulus for corporations. To help fuel its economy during the pandemic, legislators in Dhaka allowed funds from undisclosed sources to be used for the purchase of properties. Funds of a similar nature
could also be used to invest in real estate development and the stock market, based on the country's latest budget provisions.

Transparency International Bangladesh described that funding specific provisions of the national budget by money laundering as an “unconstitutional” act.³ Meanwhile, in India, companies
were allowed to reduce their contributions to social protection programs that were meant to benefit workers.

The measure couldn't have come at the worst possible time — during a life-threatening pandemic when laborers
need any and all aid that they can get.

2) Corporations were able to borrow low-interest loans intended for smaller businesses.

India's Covid-19 relief package came attached with a new policy that expanded the definition of micro, small, and medium-scale enterprises (MSMEs), the People's Recovery Tracker said.

As a result, the new policy covered larger businesses and companies. These larger entities, in turn, were able to access
low-interest loans primarily meant for smaller and women-owned enterprises that experienced abrupt business closures. This would only defeat the purpose of supporting MSMEs to survive the crises amidst a fiercely competitive business environment where larger companies have historically enjoyed greater access to credit and other resources.

MSMEs in Nepal encountered similar experiences. Medium and large businesses, including those in the tourism sector, enjoyed tax exemptions of anywhere from 20 to 75 percent. However, smaller enterprises and vendors in the informal sector who nonetheless pay indirect taxes and informal taxes were unable to enjoy them because the tax cuts were restricted only to entities formally registered with the government.

3) Corporations received government funds even though some failed to pay their workers on time.

Between March and April 2020, some garment factory owners in Bangladesh did not pay their workers on time,
according to the People's Recovery Tracker.

This followed a government announcement in March of the same year that entitles garment factories of a US$590 million stimulus package. How the beneficiaries were identified and how the funds were distributed revealed a massive discrepancy as these globally-integrated garments factories enjoyed the lion’s share of stimulus packages at the expense
of their workers.

Similarly, in Nepal, 76 percent of the workforce had not received their salaries ever since the lockdown started last year. Owing to the lack of government support, “A survey of workers indicated that 20 percent of females and seven percent
of males had already been skipping meals shortly after the pandemic began, owing to the lack of government support.”

More ways people/social services suffered because their interests were not prioritized in government bailout packages:

1) Vulnerable groups — especially women — suffered because stimulus packages were not designed to address inequalities.

Even before the pandemic hit, governments remained unresponsive to women’s demands to implement fiscal measures
to achieve gender justice amidst widespread unpaid care work and lack of access to essential public services.
Despite the implementation of economic recovery programs in developing countries, deep-seated gender inequalities remained unaddressed and were even aggravated by gender-blind fiscal stimulus.

Women around the world carried the brunt of families’ healthcare as public health systems were bled dry by inadequate funding. Even before the pandemic, women in India and Bangladesh spend at least 10 more times on unpaid care work than men⁴ – all while bearing burdens of indirect taxes that were expanded to prop up corporate recovery in these countries’ stimulus packages.

2) Vulnerable groups suffered because more money went to infrastructure projects intended for corporations’ gains.

Sixty-three percent of all the COVID-19 stimulus funds of countries examined by the People's Recovery Tracker
went to infrastructure projects that benefitted corporations and not the people. On average, only 22.4 percent went to social protection.

In Nepal, the country's flag carrier enjoyed parking and infrastructure fee exemptions. Domestic carriers
also shared a similar privilege as taxes on aviation fuel were waived. To complete Nepal's airline industry relief package,
some 19 billion Nepalese rupees (US$162 million) was set aside for the development of airports.

Unfortunately, these facilities are not immediately useful to Nepalese workers.
About a third of the workforce have already been laid off because of the pandemic. 

The situation in Nepal reflects a disturbing global trend. By December 2021, up to 163 million people — including those inside and outside Nepal — could fall into extreme economic poverty, according to the People's Recovery Tracker.

To alleviate hunger, suffering, and dislocation, "governments should implement adequate universal social protection systems without delay," the Tracker said.

3) Vulnerable groups who suffered the most during the pandemic will pay for COVID-19 loans that did not benefit them.

Responding to intensified demands for economic relief, external borrowing has been reinforced as the dominant policy tool used by governments to fund stimulus programs. This raises concerns on financial transparency and heavier debt burdens that will negatively impact the urgent financing of public services.

When the pandemic struck, the World Bank provided US$50 million in immediate funding to support Kenya's COVID-19 emergency response. However, loan use was marked by a lack of transparency and perhaps may even be involved
in a procurement scandal at a medical supplies agency. Since very little information is available regarding how the funds
were spent, Kenyan activists have already issued calls to refuse additional borrowing.

Unfortunately, whether or not the loans were used for Kenya's pandemic response, these will nevertheless
be paid for by Kenyans, most of whom are poor and continue to suffer from the effects of this continuing crisis.
A somewhat similar experience has been reported  in many other Asian countries.

4) Vulnerable groups will bear the brunt and absorb the impact of revenue-eroding policies such as reductions in corporate income tax.

The deep recession in these countries opened another opportunity for multinational and domestic corporations to justify perpetuating the ‘race to the bottom’ in corporate income tax rates, gravely diminishing tax bases of countries
with the strongest urgency in funding peoples’ needs. For the Asian countries covered in the Report, the impacts of tax losses on public health spending are staggering: a share of 44.7% in India and 61.89% in Bangladesh is lost to corporate tax abuses.⁵

In Kenya, corporate income taxes have been cut from 30 to 25 percent and three to one percent for small businesses, including MSMEs. Similar measures were also taken in Bangladesh, wherein seven new sectors enjoyed tax holidays.
Apart from the countries in the study, other Asian nations such as Indonesia⁶ and the Philippines⁷ passed laws to reduce corporate income tax rates in the middle of the pandemic. Corporations are being taxed less while taxes on essential goods remained high despite job and income losses of peoples in these countries.

----

The People’s Recovery Tracker revealed that far from a “great reset” of the global economy, corporations in developing countries continued to enjoy VIP access to fiscal stimulus programs amidst the unprecedented losses in livelihood experienced by the vast majority of peoples in Asia. What ensued was a bailout of massive proportions in order to finance economic recovery of corporations. Hence, we need to go beyond recovering unjust systems and towards economic rebuilding by first dismantling tax and fiscal instruments historically tilted in favor of corporations and then constructing long-term development agenda centered on peoples’ needs.

Ahead of the UN High-Level Political Forum (HLPF) on Sustainable Development, APMDD reiterates our call to the United Nations and to governments in the world for “more decisive action from governments at a national level
and as an international community most especially at this time when we can ill-afford the continuation of undermining public revenues. We emphasize that tax justice must be accompanied by government budgets and spending programs that give primacy to the immediate needs of people and communities in the face of the multiple crises, providing essential services, fulfilling human rights and social justice, and addressing inequality.”⁸

References:

1) International Labor Organization (2020). “81 million jobs lost as COVID-19 creates turmoil in Asia- Pacific labour markets.” Press Release. Accessed 28 June 2021. Retrieved from: https://www.ilo.org/asia/media-centre/news/WCMS_763819/lang--en/index.htm 

2) Financial Transparency Coalition (2021). “Towards a People's Recovery: Tracking Fiscal and Social Protection Responses to Covid-19 in the Global South.” Research Report. Accessed 18 May 2021. Retrieved from: https://financialtransparency.org/wp-content/uploads/2021/04/FTC-Tracker-Report-FINAL.pdf 

3) Transparency International Bangladesh (2020). “Whitening black money unconstitutional, immoral, discriminatory & corruption-friendly.” Press Release. Accessed 29 June 2021. Retrieved from: https://www.ti-bangladesh.org/beta3/index.php/en/media-release/3213-whitening-black-money-unconstitutional-immoral-discriminatory-corruption-friendly 

4) Mercado, Lan; Naciri, M.; and Mishra, Y. (2020). “Women’s Unpaid and Underpaid Work in the Times of COVID-19”. UN Women Asia-Pacific. Blog Post. Accessed 28 June 2021. Retrieved from: 

5) Global Alliance for Tax Justice (2020). “The State of Tax Justice 2020”. Research Report. Accessed 18 May 2021. Retrieved from: https://www.globaltaxjustice.org/sites/default/files/The_State_of_Tax_Justice_2020_ENGLISH.pdf 

6) Adrian Wail Akhlas (2020). “Indonesia accelerates tax reforms, cuts corporate income tax in COVID-19 playbook.” The Jakarta Post. Accessed 30 June 2021. Retrieved from: https://www.thejakartapost.com/news/2020/04/02/indonesia-accelerates-tax-reforms-cuts-corporate- income-tax-in-covid-19-playbook.html

7) Pia Ranada (2020). “Duterte signs bill lowering corporate income tax, vetoes some items” Rappler. Accessed 30 June 2021. Retrieved from: https://www.thejakartapost.com/news/2020/04/02/indonesia-accelerates-tax-reforms-cuts-corporate-income-tax-in-covid-19-playbook.html 

8) Asian Peoples Movement on Debt and Development (2020). “Urgent Letter from Asian Movements to UN GA and Member States.” Official Statement. Accessed 28 June 2021. Retrieved from: https://www.apmdd.org/programs/urgent-letter-from-asian-movements-to-un-ga-and-member-states