Economy

Tax Harmonization, The One True Way To Combat Fiscal Havens

Tax evasion is nothing new, questioning its causes is.
Tax evasion is nothing new, questioning its causes is.
Bernard Monassier

-OpEd-

PARIS — Public opinion was outraged, and rightly so, by revelations from the so-called Paradise Papers investigation and the publication, before that, of the Panama Papers. But no one ever questions the root causes of these tax scandals. It's not enough to complain and condemn. We must deal with the root causes of the problem if we are to solve it.

These scandals have three origins. The first is fiscal de-synchronization, and here, governments have the primary responsibility. If Ireland didn't have such a low corporate tax rate companies wouldn't choose to make the Emerald Isle their tax home. Tax dumping is the primary reason for tax evasion. If tax rates were harmonized between the different member countries of the Organization for Economic Co-operation and Development (OECD), no one would try to make a so-called "double Irish with a Dutch sandwich," or anything of the sort.

Therefore, we ought to harmonize tax rates so as to avoid the kinds of ludicrous tax arrangements put together by the GAFA (Google, Apple, Facebook, Amazon) giants and other companies taking advantage of those differences between countries. This tax war will only get worse with Trump's reforms. The United States will become a tax haven compared to other countries in the world. And it's got the European Union worried. But unless they work toward standardizing their tax policies, governments have only themselves to blame.

State representatives protesting tax evasion in Germany in light of the Paradise Papers — Photo: Jens BϋTtner/ZUMA

The second root cause of tax avoidance is that tax rates are often seen as confiscatory. If they were lower, the incentive to make such complex and costly tax optimization arrangements would likely be weaker. Politicians need to understand that beyond a certain level of taxation, taxpayers no longer want to play ball. They feel like the government is robbing them.

If we lower tax rates, there will be less fraud. The effect was visible, for example, when France lowered notary fees from 10% to 6%. As a result, backhanders have virtually disappeared. When taxation levels remain reasonable, they are better accepted. That is why the flat tax introduced by President Emmanuel Macron is an excellent thing. With a flat 30% tax rate on capital gains, there is no longer any interest in defrauding. But with a 60% tax, nobody wants to play the game anymore.

The third source of fraudulent fiscal behavior has to do with the value-added tax or VAT. Recent scandals have brought to light the alleged complicity of major French groups in these VAT frauds via the Isle of Man.

There's only one global solution.

By the way, why do Russian billionaires choose to register a number of structures on this British island? They say it's because they don't trust the reality of the rule of law in Russia. Is that true or false? I don't know, but it's worth asking ourselves the question. These oligarchs may not be as pure as the driven snow. But on the other hand, Russia isn't seen as a champion of the rule of law by the international community either.

The taxation of private aircraft is another case of fiscal nonsense. If you buy a tourist plane, the VAT rate is 10%. But if you declare that you're using it for business purposes, there is no VAT. And officially, it's the responsibility of the country in which the aircraft is registered to verify how you actually use it.

The overall point here is that the succession of tax scandals we've seen are the result of heterogeneous global taxation and of tax rates that are sometimes too high. To combat tax fraud and tax optimization, there's only one global solution: tax harmonization.

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Geopolitics

Why This Sudan Coup Is Different

The military has seized control in one of Africa's largest countries, which until recently had made significant progress towards transitioning to democracy after years of strongman rule. But the people, and international community, may not be willing to turn back.

Smoke rises Monday over the Sudanese capital of Khartoum

Xinhua via ZUMA
David E. Kiwuwa

This week the head of Sudan's Sovereign Council, General Abdel Fattah El Burhan, declared the dissolution of the transitional council, which has been in place since the overthrow of former president Omar el-Bashir in 2019. He also disbanded all the structures that had been set up as part of the transitional roadmap, and decreed a state of emergency.

In essence, he staged a palace coup against the transitional authority he chaired.


The general's actions, which included the arrest of Prime Minister Abdalla Hamdok, are a culmination of a long period of tension between the civilian and military wings of the council.

A popular uprising may be inevitable

The tensions were punctuated by an alleged attempted coup only weeks earlier. The days leading to the palace coup were marked by street protests for and against the military. Does this mark the end of the transition as envisaged by the protest movement?

Their ability to confront counter revolutionary forces cannot be underestimated.

The popular uprising against Bashir's government was led by the Sudan Professional Association. It ushered in the political transitional union of civilians and the military establishment. The interim arrangement was to lead to a return to civilian rule.

But this cohabitation was tenuous from the start, given the oversized role of the military in the transition. Moreover, the military appeared to be reluctant to see the civilian leadership as an equal partner in shepherding through the transition.

Nevertheless, until recently there had been progress towards creating the institutional architecture for the transition. Despite the challenges and notable tension between the signatories to the accord, it was never evident that the dysfunction was so great as to herald the collapse of the transitional authority.

For now, the transition might be disrupted and in fact temporarily upended. But the lesson from Sudan is never to count the masses out of the equation. Their ability to mobilize and confront counter revolutionary forces cannot be underestimated.

Power sharing

The transitional pact itself had been anchored by eight arduously negotiated protocols. These included regional autonomy, integration of the national army, revenue sharing and repatriation of internal refugees. There was also an agreement to share out positions in national political institutions, such as the legislative and executive branch.

Progress towards these goals was at different stages of implementation. More substantive progress was expected to follow after the end of the transition. This was due in 2022 when the chair of the sovereignty council handed over to a civilian leader. This military intervention is clearly self-serving and an opportunistic power grab.

A promised to civilian rule in July 2023 through national elections.

In November, the rotational chairmanship of the transitional council was to be passed from the military to the civilian wing of the council. That meant the military would cede strong leverage to the civilians. Instead, with the coup afoot, Burhan has announced both a dissolution of the council as well as the dismissal of provincial governors. He has unilaterally promised return to civilian rule in July 2023 through national elections.

Prior to this, the military had been systematically challenging the pre-eminence of the civilian authority. It undermined them and publicly berated them for governmental failures and weaknesses. For the last few months there has been a deliberate attempt to sharply criticize the civilian council as riddled with divisions, incompetent and undermining state stability.

File photo shows Sudan's Prime Minister Abdalla Hamdok in August 2020

Mohamed Khidir/Xinhua via ZUMA

Generals in suits

Since the revolution against Bashir's government, the military have fancied themselves as generals in suits. They have continued to wield enough power to almost run a parallel government in tension with the prime minister. This was evident when the military continued to have the say on security and foreign affairs.

For their part, civilian officials concentrated on rejuvenating the economy and mobilizing international support for the transitional council.

This didn't stop the military from accusing the civilian leadership of failing to resuscitate the country's ailing economy. True, the economy has continued to struggle from high inflation, low industrial output and dwindling foreign direct investment. As in all economies, conditions have been exacerbated by the effects of COVID-19.

Sudan's weakened economy is, however, not sufficient reason for the military intervention. Clearly this is merely an excuse.

Demands of the revolution

The success or failure of this coup will rest on a number of factors.

First is the ability of the military to use force. This includes potential violent confrontation with the counter-coup forces. This will dictate the capacity of the military to change the terms of the transition.

Second is whether the military can harness popular public support in the same way that the Guinean or Egyptian militaries did. This appears to be a tall order, given that popular support appears to be far less forthcoming.

The international community's appetite for military coups is wearing thin.

Third, the ability of the Sudanese masses to mobilize against military authorities cannot be overlooked. Massive nationwide street protests and defiance campaigns underpinned by underground organizational capabilities brought down governments in 1964, 1985 and 2019. They could once again present a stern test to the military.

Finally, the international community's appetite for military coups is wearing thin. The ability of the military to overcome pressure from regional and international actors to return to the status quo could be decisive, given the international support needed to prop up the crippled economy.

The Sudanese population may have been growing frustrated with its civilian authority's ability to deliver on the demands of the revolution. But it is also true that another coup to reinstate military rule is not something the protesters believe would address the challenges they were facing.

Sudan has needed and will require compromise and principled political goodwill to realise a difficult transition. This will entail setbacks but undoubtedly military intervention in whatever guise is monumentally counterproductive to the aspirations of the protest movement.

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David E. Kiwuwa is Associate Professor of International Studies at University of Nottingham

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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