Worst tax havens in the world

ISLAMABAD: In its report, Tax Battles, an international NGO working on widening inequalities, Oxfam, has identified as many as 15 worst tax havens which facilitate the most extreme form of tax dodging in an attempt to attract business. Two of them are the favourite destinations of Pakistanis: BVI and Bahamas. 

While Bermuda tops the Oxfam ranking, this notorious list also contains the name of countries generally regarded out of this league: Netherlands, Switzerland, Singapore, Ireland, Hong Kong, Luxembourg, Cyprus and others. Cayman Islands, Bahamas, British Virgin Islands, Barbados, Jersey, Mauritius and Curacao have also featured in this list.   

Such tax havens hit hard the poor everywhere. They allow the rich to maximize their profit by paying little to no tax which is otherwise considered the main source of revenue of any government to establish its writ, build roads, run schools, hospitals and subsidize the poor sections of society.  

When the rich transfer profit abroad by availing tax avoidance schemes offered by offshore jurisdictions, burden of tax is transferred on the poor. The government starved of revenue eventually levies regressive taxes such as General Sales Tax (GST) or Value Added Tax (VAT) on the poor and lower middle class.  

These indirect taxes which fall disproportionately on poor people make up on average 67 percent of tax revenues in the developing world. At the same time, increased profits as a result of lower corporate taxation benefit the shareholders and owners of corporations who are predominantly wealthy, further increasing the gap between rich and poor. 

Ending the corporate tax race to the bottom and protecting corporate tax revenues is particularly important to developing countries, according to Oxfam. In poor countries, corporate tax revenues as a proportion of total tax revenues are twice as important as they are for rich countries. 

In 2014, IMF research showed that developing countries are up to three times more vulnerable to negative effects of other countries’ tax rules and practices than rich countries. Research by the United Nations University recently suggested that the poorer a country is, the more likely it is that corporations will shift their profits out of the country in response to incentives (e.g. lower rates) offered by other countries. 

Developing countries lose around $100b annually as a result of corporate tax avoidance schemes. This amount is more than enough to provide an education for all of the 124 million children currently out of school, and to pay for health interventions that could save the lives of six million children. Action Aid has estimated that developing countries lose a further US$138b due to tax incentives offered by developing countries to large businesses. 

Oxfam earlier this year revealed that just 62 people in the world own the same wealth as the bottom 3.6 billion people. This stark statistic illustrates the scale of an inequality crisis that is undermining economic growth and the fight against poverty, and destabilizing societies across the globe. 

The newly launched report examines one of the key drivers fuelling this inequality crisis: tax competition, and the resultant race to the bottom in the taxation of global corporations. Using new research, this report exposes the world’s worst corporate tax havens. The report looks at the harm caused by falling corporate tax rates and tax giveaways in countries across the world. Finally, the report identifies clear actions governments can take to act in the interest of their citizens and put an end to tax havens and the race to the bottom. 

Low corporate tax rates or further tax giveaways are promoted because they are supposed to attract investment, says Oxfam’s report. Yet evidence shows that corporate tax rates are not the main consideration for companies when seeking where to invest. There are 12 reasons why companies choose to invest in a country, according to the World Economic Forum’s Global Competitiveness report.

The most important are the quality of the country’s infrastructure, the availability of an educated, healthy workforce, and social stability. Corporate tax contributions are vital to ensuring the revenue for these investments.