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
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
13 July 2021
Seen from an economic justice perspective, the results of the recently concluded meeting of G20 Finance Ministers and Central Bank governors in Venice are a huge disappointment. The G20 through its finance leaders resoundingly echoed the OECD tax proposals, considered by many leaders of developing countries and CSOs as “false solutions.”
“The G20 did not address the fundamental flaws in the international tax architecture nor respond to the needs, rights, and interests of peoples of the Global South,” said Lidy Nacpil of the Asian Peoples Movement on Debt and Development (APMDD).
“The disappointing outcome of this latest G20 finance leaders’ meeting is perhaps not surprising. It simply underscores the longstanding objection of civil society organizations to the persistent hijacking by rich countries of the agenda to transform global tax rules that have historically benefitted multinational corporations residing within their jurisdictions,” Nacpil added.
In a Communique issued after their meeting concluded last July 10, G20 finance leaders noted that the “global outlook” has improved but that the recovery has “great divergence” across and within countries. The so-called “historic agreement” of the G20 finance leaders is built upon a mere endorsement of the Two-Pillar solution on tax issues proposed by the OECD but widely criticized by CSOs and thought leaders from Africa, Latin America, Asia, Europe, and other parts of the world.
"We endorse the core elements of the two pillars on the profit reallocation of multinational enterprises and the global minimum tax as set out in the statement released by the G20/OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS)," read the Communique of the G20 Finance Ministers and Central Governors’ Meeting on July 10.
The core elements described by the G20 finance deal refer to the OECD’s global tax proposals contained in the statement “A Two–Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy.” Released just last 1 July 2021, the lnclusive Framework on BEPS in turn had strongly championed the earlier tax deal of the G7. In June of this year, the G7 countries, the world’s elite, agreed on the following: 1) on Pillar One, a global reallocation of taxing rights residual, non-routine profits of the largest 100 multinational companies; and 2) on Pillar Two, a global minimum corporate tax rate of 15%. This rate is markedly lower than both the global average corporate tax rate at 25% and recommendations by the UN High-Level Panel for Fiscal Accountability, Transparency, and Integrity (UN FACTI).
Intense criticisms by civil society organizations worldwide concern the prospective impacts of these proposals on tax revenues of countries in the Global South.
“To force through such an unfair reform, giving the lion’s share of revenue to the largest OECD members when lower-income countries lose the greatest share of tax revenue to corporate tax abuse, is shocking,” Alex Cobham, chief executive of the Tax Justice Network, said in a statement on the OECD’s proposal expected to be adopted by the G20 Finance Ministers.
Cobham denounced the timing of the proposal as a strikingly low global minimum corporate tax rate is set to generate a paltry amount of additional revenues for developing countries struggling to finance essential public services, as revealed in The State of Tax Justice 2020 report.
The Global Alliance for Tax Justice (GATJ) also raised serious concerns on the “unequal” distribution of revenues from taxed profits under Pillar One. “Far from ensuring the taxing rights of developing countries, the ‘solution’ will limit the right to tax of source countries to a small proportion of MNCs’ profits and entrench taxing rights to headquarter countries over global profits,” GATJ’s statement released on July 5 read. According to Dereje Alemayehu, chair of GATJ, this signifies that the proposals “evidently do not address the fundamental problems of the current international tax architecture and ignore the developing countries’ interests.”
These concerns are shared by many civil society organizations from developing countries whose governments are now under strong pressures by the OECD and G20 to endorse the proposals.
Civil society organizations in Africa issued a statement decrying the proposals for reflecting the rich countries’ “self-interest,” given the history of tax abuses, environmental degradation, and labor rights violations by multinational corporations in the region. The statement criticized the skewed allocation of revenues from Pillar Two to countries where multinationals are headquartered. “Conveniently, these tend to be the finance capitals of the Global North which constitute most of the G7. The developing countries from which these profits are often extracted in the first place, and which are the most in need of fiscal resources to finance development and public services, are left by the wayside,” the statement added.
In Asia, the growing challenges in taxing digital services are expected to be compounded by the proposal to eliminate domestically-determined Digital Services Taxes (DSTs). A statement signed by civil society organizations from the Philippines called attention to the failure of the two-pillar solution to address these challenges since the proposed 15% global minimum corporate tax rate is “ridiculously low and utterly meaningless with respect to the billions of dollars earned by digital companies from developing and even some developed countries since these MNCs do not have nor need physical presence therein.”
Denouncing the “inequitable” and “undemocratic” process led by the G7 and the OECD, APMDD’s Lidy Nacpil issued a strong statement that “[s]etting new tax rules for the rest of the world must not be an initiative orchestrated by the richest 10% of the global population, whose multinational corporations have amassed billions in profit at the expense of natural resources and labor in developing countries.” For a global tax agreement that will adequately address the needs of peoples in Asia, APMDD firmly rejects the “false solutions'' proposed by the G7 and the OECD/G20, demanding governments in Asia to “fight for a just agreement through a UN Tax Convention and for an inclusive, democratic and transparent UN Tax Body.”
Developing countries whose governments are only participating in the OECD Inclusive Framework on the level of technical expertise are reportedly facing mounting pressure from OECD countries and similar informal groups to accept and ratify the G20/OECD proposals in their domestic legislation.
In the lead-up to upcoming global meetings such as the UN General Assembly in September and the G20 Summit in October this year, CSOs and other tax justice advocates from different parts of the world are expected to continue rejecting the ‘Two-Pillar solution’, advancing a transformative tax justice agenda, and clamoring for genuine solutions to address the multiple crises that continues to plague the world, deepening and widening inequalities.
Asian Peoples’ Movement on Debt and Development (APMDD)
Communications , Development Finance Team
On the eve of the UN Public Service Day, June 23, we recognize the work of public servants, especially in health care, and reiterate the urgent need to expand the fiscal space for increased investments in public services. Corporate tax abuses and other illicit financial flows (IFFs) must be stopped to plug the leaks that have been draining our economies of precious resources that should have been invested in public services.
The nightmare of COVID-19 was unleashed not only by a virus. Years of inadequate investments in public health left many countries unable to cope with the health crisis. Life-saving vaccines are now available but global inequality is also apparent in the ability of rich countries to hoard vaccines while developing countries have to make do with extremely slow vaccine rollout.
Governments must stand for the public good and respond to calls for vaccine equality and for a suspension of intellectual property rules for COVID-19 vaccines. People’s health must not be held hostage to the profit-driven agendas of pharmaceutical multinational corporations.