KOCHI: The US real estate billionaire, the late Leona Helmsley’s off quoted remark “we don’t pay taxes. Only the little people pay taxes”, allegedly made in the early 1980s has lost shock value long ago. Tax dodging nowadays has become a fine art backed by battery of experts. An integral part of the global economy tax avoidance industry has been however cited as one of the most important cause of the dreadful inequality prevailing in the world.
Several studies have been indicting tax avoidance for perpetuating such a system. The report ‘An Economy for the One per cent’, released by the UK-based activist group Oxfam in January this year, has stated that the richest individuals of the global population is hiding $7.6 trillion in a network of tax havens.
A global network of tax havens further enables the richest individuals to hide $7.6 trillion”, it said. People familiar with the murky world of tax havens will vouch that the expose of the illegal wealth stashed away in Panama Papers is only the tip of the iceberg. Tax havens, an intricate web of networks intimately linked with the mainstream of global economy has been under the radar screen of law enforcement agencies, academic experts and activist groups in the recent past.
The global financial meltdown in 2008 and the subsequent immiseration of millions of people have helped to hasten the process. The Occupy Wall Street movement and several other activist groups across the world have also helped in highlighting the problem.
Dirty Money: Inside the secret world of offshore banking, a study published by John Christensen in 2007 in provides an illuminating account of the emergence of island of Jersey, one of British Channel Islands, as a prominent tax haven in the past few decades. Mr. Christensen, director of the UK-based Tax Justice Network International, who worked in India in the early 1980s, in the study says that he became “increasingly aware that the capital market and trade liberalization programs promoted by the International Monetary Fund and the World Bank were making it easier for the wealthy people and corporations to evade taxes”.
Describing the pivotal, but ‘hidden role’ by tax havens in transferring money illicitly in secret bank accounts Mr. Christensen says that the process is “sapping the prospects for economic development in the world’s poorest nations”. Mr. Christensen also pointed out that it is high time for the policy makers and the academicians to understand the role played by the off-shore banking systems in distorting the global economy.
“A few checks through the academic literature of the 1980s confirmed that there were virtually no studies of the role of tax havens or how they were interacting with the emerging globalized financial markets. Offshore finance still scarcely gets a mention in specialist texts on capital markets and world trade, let alone in the mainstream texts studied by economics undergraduates in universities around the world. This is an important omission, especially when you consider that one-half of world trade passes through tax havens, on paper if not in reality,
and that trillions of dollars flow daily through the offshore networks”, the study said.
The tax havens, facilitated mainly by big corporate firms, functions mainly to stash away wealth through legal and illegal means as the intricate web of shell companies make it difficult to differentiate between the legal and the illegal circuitry of global financial flows happening with the speed of thought in the digital age. Drug and terrorist cartels use the same system to channel their funds.
The regressive tax policies came with the neo-liberal economic order has led to the proliferation of tax havens in the form of off-shore banking facilities.
A report by International Monetary Fund in 2000 has identified at least
67 countries providing off-shore financial services.
The study by Mr. Christensen has pointed out that preferential treatment under the Basel I banking agreement helped to grow offshore banking at an astonishing rate. Despite such a rapid growth “little attempt has been made to regulate their activities in developing countries or to crack down on the use of offshore accounts and trusts for tax evasion”. “According to one estimate, some $5 trillion of capital has been shifted out of poorer countries to the West in the past decade, and $1 trillion of dirty money flows annually into offshore accounts, approximately half of which originates from developing countries”.
The information provided by the Panama Papers has to be viewed in this background. Experts such as Christensen are of the view that a global movement has to be mounted for bringing out the stashed away wealth in the tax havens and offshore banking centres.
