Global Alliance for Tax Justice (GATJ)’s regional network Red de Justicia Fiscal de América Latina y el Caribe (RJFALC) – together with Latindadd and other members and partners – joined academics and other representatives of civil society organisations on 2 and 3 May, to discuss ways forward to an inclusive, sustainable and equitable taxation in Latin America and the Caribbean. The forum was promoted by the Colombian Ministry of Finance in Bogotá, and is part of the first-ever regional Fiscal Summit, which was initially called by the country’s former Ministry of Finance José Ocampo in the World Economic Forum.
Several points of concern with the event were raised by civil society organisations due to the lack of transparency in the selection process of the contributions, which also included a few panellists who defended rather corporate interests, representing a setback to the progressive work that civil society has been developing for decades. In response to that, RJFALC and Latindadd released a statement, which can be read and endorsed here.
“Latin America and the Caribbean is the most unequal region on the planet. Its social indicators have worsened sharply in recent times and have not fully recovered from the devastating effects of the pandemic. The region’s dismal social and economic reality has among its many causes a major one: tax abuse. Precisely because of this, there is a greater need than ever for political articulation around tax issues, but with a broader thematic agenda and without corporate capture of the States,” wrote Adrián Falco, coordinator of RJFALC, in an article about the pre-summit event.
Check out some key points presented that can contribute towards a truly game-changing fiscal pact in Latin America and the Caribbean:
Human rights as the starting point for fiscal policy
As most speakers agreed that an inclusive international tax reform is necessary, Pedro Rossi, researcher at the State University of Campinas (Brazil), reminded that even the logic that most commonly guides the formulation of economic models needs to shift.
“We have a problem: the way the traditional economic approach treats – or doesn’t treat at all – human rights issues. As human rights are based on moral parameters, the resources assignment must respect fairness and such parameters as well. But when we look at the orthodox economy, it says that resources distribution must respect efficiency, not morals. The orthodox economy is supposedly neutral, as if it were medicine, but in the economy there is no lab big enough where we can fit everyone and control all social variables,” said Rossi, who is member of the committee of experts of the Initiative for Human Rights Principles in Fiscal Policy, a Latin American civil society initiative that strives to centre human rights at the heart of tax and public spending policies.
“Economics is a moral science. If we don’t look at it that way, we’ll have difficulty in including human rights in our models, because efficiency doesn’t necessarily guarantee rights. We need to shift this logic, we need a new economy based on human rights,” he defended.
Strengthening regional cooperation
Both Claudia Vargas, director of the international tax affairs office in Colombia, and Nathalie Beghin, policy coordinator at Inesc and co-president of Latindadd, emphasised the importance of strengthening regional cooperation to fight tax abuse.
Vargas shared that strengthening the automatic exchange of financial and fiscal information between countries and jurisdictions is key to facilitate control, supervision and policy formulation.
Beghin made several recommendations on how to better manage tax expenses, such as eliminating tax privilege to corporations (like exemptions that have no redistributive or social results), and promoting more transparency on tax information.
“Regional cooperation would be very important to unify tax bases and avoid a destructive run to lower taxes, which would obviously include even more tax exemptions”, said Beghin, also adding that “redistribution and solidarity are values that we should keep in mind” while building these bases. “That’s the real efficiency”, argued.
Tax justice can advance gender equality
Fiscal policy disproportionately affects women at the intersection of inequalities, as pointed out by Cristina Vieceli, researcher of the Federal University of Rio Grande do Sul (Brazil). She conducted with researcher Rober Iturriet a study that shows that women proportionately pay more taxes than men in Brazil.
“Men are the majority of taxpayers in all income levels but women pay higher effective rates,” she said, explaining that it happens mainly due to the gender bias in tax systems, as well as its regressive nature and an over-reliance on indirect taxation. She illustrated: “In Brazil, profits and dividends are not taxed, and men are the ones who mostly receive this kind of income.”
Besides taxing profits and dividends, her proposal for a tax reform with a gender lens includes the reduction of taxes on basic items – such as food, energy and hygiene products –, in which women tend to spend more of their income. Increasing tax deduction among single-parent families and setting higher tax rates for travel and real estate acquisitions (mainly consumed by upper class men) could also contribute to a more equal system, indicated Vieceli.
Increasing domestic resource mobilisation and ending austerity measures
As the whole world faces the challenges of the pandemic recovery, Matti Kohonen, executive director of the Financial Transparency Coalition (FTC), emphasised governments will need to mobilise more public resources to meet the Sustainable Development Goals (SDGs). “The UNCTAD estimates that we need US$ 4 trillions to finance the SDGs, and the main narrative presented by the World Bank and the Organisation for Economic Cooperation and Development (OECD) is that this scale of financing can only be mobilised from private sources,” he said. “However, from the experience of the pandemic, we can see countries in the Global North were able to allocate an average of 19% of their GDP into recovery and social assistance.”
A study conducted by FTC – together with Latindadd, Tax Justice Network Africa (TJNA) and Asian Peoples’ Movement for Debt and Development (APMDD) –, focusing on 21 developing countries, shows that countries in the Global South mobilised only 2,6% of their GDP to finance the recovery. “Between 2020 and 2021, in these 21 countries in the Global South, we saw only 38% of recovery spending towards social protection, while large corporations got 38%, MSMEs [micro, small and medium enterprises] got 20%, and the informal sector 4%,” he underlined.
Kohonen also warned of the negative impacts of austerity measures, widely adopted in the region. “The recovery spending in 2021 largely ended, giving way to a wave of austerity where 85% of the world population will be living in countries exercising public expenditure cuts by 2023. Only progressive tax reforms can turn the trend”, he said.
Negotiations and decision-making related to tax should be at the UN
Participants underlined during the event the importance of reforming the global tax architecture to effectively address international tax abuse and reduce inequalities within and between countries.
“The international tax architecture is broken and is completely irrelevant today. We didn’t have the same kind of corporations at that time. Companies are paying effective tax rates of 5% or even 0%. In the past years, there was an explosion in global profits, but not an increase in corporate taxation. We are handing money over to large corporations, and depriving ourselves of basic infrastructure and essential public services,” said keynote speaker Jayati Ghosh, co-chair of the Independent Commission for the Reform of International Corporate Taxation (Icrict).
Sergio Chaparro, international policy and advocacy lead at Tax Justice Network (TJN), gave a concrete example of how broken this tax architecture is: according to the TJN report State of Tax Justice 2020, US$ 427 billion are lost every year due to international tax abuse. In Latin America, the losses are estimated at US$ 93 billion annually.
Many speakers highlighted that the OECD’s so-called Two-Pillar solution falls short, and endorsed developing countries and civil society’s long-standing call for an intergovernmental tax process at the United Nations (UN). The proposal was first put forward by the Africa Group, and was recently approved at the 77th session of the United Nations General Assembly (UNGA) in November 2022.
“The OECD tax agreement has several problems but perhaps the biggest one is that the benefit to developing countries has been minimal. This is an issue that is already demonstrated in analyses all around the world, including by the International Monetary Fund,” said Ocampo. “If we want our countries to rise to a level of development that guarantees the rights of the population, we need to strengthen a global tax scheme in which developing countries have their interests defended,” said Luis Carlos Reyes, director of Colombia’s National Directorate of Taxes and Customs (Dian).
Ocampo reiterated that an intergovernmental tax body at the UN is needed to build inclusive, sustainable and equitable tax systems. “It’s an alternative that we should seriously consider, as the UN is truly inclusive and representative of developing countries, unlike the OECD”, he argued.