Despite its massive domestic challenges of tackling poverty and environmental sustainability, India has so far contributed $200,000 to the ‘Trust Fund’ ($100,000 last year and this year). Why has it done so? Primarily because India sees the reform of international tax governance as being in the interest of developing countries.
As stated by Syed Akbaruddin, permanent representative of India to the UN:
“The global governance architecture for cooperation in taxation has not kept pace with the pace of globalisation. International tax matters remain bastions of Westphalian sovereignty [. . .] As for multilateralism, while it is seen as faltering on many fronts, it has been and remains conspicuously absent in matters of international tax cooperation. Those who have championed expansive roles for multilateral organisations on numerous other issues have alas not espoused this cause.”
First, some background. The ‘Trust Fund’ was setup in 2006 to support the activities of the UN’s Committee of Experts on International Cooperation in Tax Matters. This committee is the nearest thing the world has to a genuinely global tax authority. It consists of 25 experts from developed and developing countries and sets norms on various aspects of international taxation and helps with their execution. However, the committee is not a political body, meaning that it consists of experts who represent themselves, not their countries. As a result, its output has an advisory and hence non-binding nature.
India and the developing world have been demanding for decades to transform the UN tax committee into an intergovernmental tax commission. This would create a genuinely global tax authority, which would be to international tax what the WTO is to international trade – a forum where rules are negotiated and enforced by members. The creation of an intergovernmental tax commission will plug a major gap in global governance and can effectively address the problem of tax evasion or black money.
It is well known that India is negatively affected by outflows of black money. The extent of damage is massive indeed. India is the world’s fourth worst affected country by illicit financial flows and lost an average $51 billion dollars per year between 2004-2013. Curbing these outflows requires both domestic and multilateral action. At the domestic level, the government has taken several initiatives. However, these by themselves cannot solve the entire problem and multilateral action is needed to modify the rules of international tax that have made this capital flight possible.
This is why India is an active participant in the OECD’s Base Erosion and Profit Shifting (BEPS) initiative. However it has made it clear that while BEPS is a valuable addition to international tax reform, fundamental questions of governance as yet remain unaddressed.
India’s consistent position has been that the 35 countries of the OECD cannot dictate the rules of international tax to the rest of the world. This is why India has been supporting a primary role of the UN in international tax governance and that is why it contributed $200,000 to the Trust Fund.
India’s contribution to global tax justice
The UN tax committee is in severe need of funding. It lacks enough money to fund meetings of its subcommittees, or to give them secretariat support. The meetings of subcommittees are essential to the overall committee’s functioning as the bulk of technical work is done here. Members from developing countries in particular are hard hit as they sometimes cannot afford travel costs. This means that they miss out on meetings and hence cannot raise the issues of their countries.
Developing countries have no other forum to raise their issues. The BEPS “Inclusive Framework” essentially asks countries to implement rules made up unilaterally by the OECD. Further, there are many pending issues (such as the reallocation of source vs residence taxation rights) that are outside the scope of BEPS. So for developing countries, the UN tax committee remains the sole global forum where they can raise issues of their interest.
It is here that India’s contribution to the UN tax committee, however modest, is of real value to global tax justice. It will enable the committee to function better and help developing countries raise issues of their interest. It is a tangible sample of its commitment to multilateralism and economic justice.
This becomes all the more important in this day and age when globalisation is under attack because of its failure to give redistributive benefits to ordinary people.
Strengthening the UN tax committee BRIC by BRIC
India cannot remain the sole contributor to the UN tax committee. The help of other countries is required. It is imperative that other nations that are negatively affected by tax evasion and are not members of the OECD begin contributing to the UN committee.
Three such countries are China, Russia and South Africa. All three are impacted by tax evasion in a significant way. Between 2004-2013, China suffered the largest illicit financial outflows in the world, losing an average $139 billion per year followed by Russia at No. 2 which lost an average $105 billion annually. South Africa is the seventh most affected country, losing around $20 billion annually. Its former President Jacob Zuma even raised the issue of transfer pricing in his speech to the UN General Assembly in September 2017.
Thus there are strong practical reasons for these countries to step up and take action to safeguard their tax base by strengthening the UN committee. Further, they are all part of the BRICS grouping which in its annual outcome declarations always highlights the central role of the UN to global governance.
An additional framework for institutional cooperation was created when in July 2017 the BRICS countries signed a memorandum of cooperation at the G20 meeting in Hangzhou to deepen tax cooperation, inter alia under the auspices of the UN. Thus, the next logical step is for them to begin contributing funds to the UN committee so it is better resourced and more capable of servicing the needs of all countries – both developed and developing.
Abdul Muheet Chowdhary is a consultant in the Policy Planning and Research Division of the Ministry of External Affairs. Views expressed are personal.