The Tax Justice Network (TJN) has released the first-of-its-kind report titled “The State of Tax Justice 2020- Tax Justice in the time of COVID-19” in accordance to which the international corporate tax abuse and private tax evasion is incurring a global loss of over $427 billion in tax each year. In this scenario, India’s annual tax loss aggregates to $10.3 billion i.e. $10,319,683,940 (equivalent to INR 70,000 crore), of which, a major part is corporate tax evasion nearly $10.11 billion and $202.15 million is offshore private tax evasion.
- This report revealed how much tax each country in the world loses to international corporate tax abuse and private tax evasion.
- Out of the total global tax loss of $427 billion, $245 billion (or 57.4%) is directly due to the corporate tax abuse by multinational corporations (MNCs) by shifting $1.38 trillion worth of profit into tax havens and $182 billion (or 42.6%) owing to private tax evasion i.e. wealthy individuals hiding undeclared assets and incomes offshore.
- A tax haven is a country or place with very low effective rates of taxation for foreign investors.
Basis of Analysis:
The findings of the report are based upon the data that was self-reported by MNCs to tax authorities under the Base Erosion and Profit Shifting (BEPS) project led by the Organisation for Economic Co-operation and Development (OECD).
- Other partners of this report are France-based Public Services International (PSI) and the Global Alliance for Tax Justice (GATJ).
Following table shows the top 5 Biggest Tax Losers and Biggest contributors to other countries tax losses:
|Biggest Tax Losers|
|1||United States (US)|
|2||United Kingdom (UK)|
|Biggest contributors to Other Countries Tax Losses|
|1||Cayman Islands (a British territory)|
|2||United Kingdom (UK)|
|5||United States (US)|
- G20 (Group of Twenty) member countries are collectively responsible for 26.7% of global tax losses, costing countries over $114 billion in lost tax every year. The G20 countries themselves also lose over $290 billion each year.
- The Asian region lost over $73.3 billion or $73,372,803,475. Its biggest loser is China followed by India and Japan.
–The report projected India’s Gross Domestic Project (GDP) at $2.51 trillion (based on the average of the past ten years), based on this India’s tax loss is placed at 0.41% of its GDP.
–India’s most vulnerable channel for annual tax loss is taxes lost to other countries i.e. outward foreign direct investments (OFDI) with a 66% vulnerability score. The trading partners of India which contribute most to this factor are Mauritius (23.6%), Singapore (17.2%), and the Netherlands (11.2%).
–Amid COVID-19, OFDI from India dropped in the first four months (April-July 2020) to $5.7 billion, in comparison to $11.13 billion in the same period of 2019.
–India’s estimated tax revenue losses due to offshore financial wealth of $202.2 million. Its offshore wealth is 0.4% of GDP.
–The global tax loss is equivalent to 34 million nurses’ yearly salaries lost every year, or one nurse’s yearly salary every second.
—Higher income countries are responsible for 98% of global tax losses borne by countries which aggregate to over $ 419 billion each year.
—Lower income countries are responsible for just 2% of the global losses, which results in annual tax loss of over $8 billion.
–Private tax evaders are responsible for shifting their financial assets of $10 trillion offshore.
–OECD countries are also responsible for over 59% of the $182 billion the world loses to private offshore tax evasion annually.
Solutions Suggested by TJN:
–It suggested that governments should introduce an excess profit tax on MNCs such as global digital companies, who are making excess profits during the pandemic. These profits should be identified at the global level and not at the national level.
–It also proposed to introduce wealth tax with punitive rates for undisclosed offshore assets.
–Formulation of the United Nations (UN) tax convention to set multilateral standards for corporate taxation and to ensure tax co-operation between governments.
Global Tax Ranking:
The TJN also ranked countries on the basis of two biennial indexes viz. Corporate Tax Haven Index 2019 and Financial Secrecy Index 2020. These 2 indexes are also released by TJN.These are explained as below:
2nd Corporate Tax Haven Index (CTHI) 2019:
The CTHI 2019 ranked 64 countries on the basis of 20 indicators based on how intensely the country’s tax and financial systems serve as a tool for corporations to extract wealth from around the world and hide it in the country for the purposes of underpaying tax elsewhere in the world.
- The index was first published in 2019.
Corporate Tax Haven Index 2019 Ranking
|1||British Virgin Islands|
6th Financial Secrecy Index (FSI) 2020:
The FSI 2020 ranked 133 countries on the basis of 20 indicators on how intensely the country’s tax and financial systems serve as a tool for individuals to hide their finances from the rule of law, including other countries’ laws. It was the 6th edition of FSI.
- It was first published in 2009.
Financial Secrecy Index 2020 Ranking
|2||United States (US)|
- India’s FSI value is 238.68 with a secrecy score of 47.84.
- The FSI 2020 stated a 7% reduction in global financial secrecy as a result of recent transparency reforms.
- OECD countries are responsible for 49% of all financial secrecy in the world.
- Secrecy is moving or hiding illicit money.
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About Tax Justice Network (TJN):
Chief Executive – Alex Cobham
Headquarter– Chesham, United Kingdom (UK)