Experts Weigh Proposals for Global Corporate Minimum Tax, Levy on Wealthy Individuals
The international community must join forces to finally end the offshore tax havens and policy loopholes that are draining billions of dollars needed to advance sustainable development and recover from the COVID-19 crisis, experts stressed today as the Economic and Social Council held its annual Special Meeting on International Cooperation in Tax Matters.
Among other pressing topics, tax policy specialists and senior Government officials throughout the daylong meeting — which featured three panel discussions on the role of tax revenue in fighting inequality, combating climate change and funding health systems, respectively — also discussed new proposals to enact a global corporate minimum tax; considered ways developing countries can escape the tax exemption “race to the bottom” as they seek to attract big businesses; and weighed the benefits and drawbacks of taxes on the world’s wealthiest people.
“We live in an increasingly interconnected global financial system,” said Munir Akram (Pakistan), President of the Economic and Social Council, in opening remarks. Emphasizing that the COVID-19 pandemic is reversing hard-won development gains, exacerbating inequalities and laying bare challenges with the world’s system of international cooperation, he said that the world was not on track to achieve the Sustainable Development Goals by their target date of 2030, even before the pandemic struck. Against that backdrop, international tax cooperation will help fund cross-border public goods and crises-resilient health systems, and assist countries across the globe as they strive to recover from COVID-19. Noting that the newly proposed minimum global corporate tax is one path forward, he said taxing the digital economy could also benefit developing countries.
Lui Zhenmin, Under-Secretary-General for Economic and Social Affairs, struck a similar tone, noting that stark decreases in tax revenues and stimulus spending amid the pandemic are draining State coffers. In that context, it will be impossible to avoid a “lost decade of development” without strengthening domestic resource mobilization, and enhanced cooperation on tax matters. In order to reduce extreme inequalities, he echoed calls made previously by Secretary-General António Guterres for Governments to consider enacting a solidarity or wealth tax on those who have profited during the pandemic, and went on to advocate for efforts to finally put a price on carbon. Citizens — including those below taxing thresholds — are important stakeholders who rightfully expect tax systems to address “the challenges of our times”, he said.
Also delivering opening remarks were the co-Chairs of the 25-member United Nations Committee of Experts on International Cooperation in Tax Matters. Carmel Peters, also a Policy Manager at New Zealand’s Inland Revenue Department, said that the advisory body aims to help countries mobilize domestic resources for sustainable development by broadening their tax base, strengthening tax administration and curbing tax avoidance and evasion. Since the COVID-19 pandemic began, it has created a range of tools and products to help nations “build back better”. His counterpart Eric Nii Yarboi Mensah, former Assistant Commissioner of Ghana’s Revenue Authority, added that the Committee’s guidelines mark a “practical response” to the debate on ending tax exemptions for certain projects. With the effects of climate change becoming an alarming reality, the Committee has developed and updated handbooks to help developing countries decarbonize their economies and ensure their fair share of fossil fuel revenues. It also updated a manual on transfer pricing to guide the fight against profit‑shifting.
Keynote speaker Annet Wanyana Oguttu, Professor of Tax Law in the Department of Taxation of the African Tax Institute at the University of Pretoria in South Africa, discussed the potential of taxing high-wealth individuals to contribute to domestic tax collection. In recent years, an estimated $11.5 trillion has been shifted to off-shore accounts by the world’s super-rich, evading over $250 billion in taxes annually. Governments continue to find it difficult to tax their wealthiest people, with some voicing concern that wealthy companies and individuals will flee, or about the impact of such taxes on a population’s willingness to work. Also citing difficulties in enforcement, she noted that several countries have attempted and abandoned wealth taxes over the last decade. In that context, countries can opt to amend their current tax systems to focus more on those with very large property or income, rather than institute a separate wealth tax, she said.
In the first panel of the day, on the theme “Taxation and inequality”, panellists and other experts drew attention to discussions currently under way in the “Group of 20” (G20) and other international forums on measures to help developing countries escape the pressure to implement tax exemptions or incentives — what many speakers termed a “race to the bottom”. The representative of the United States recalled that her Government recently shared a proposal on the establishment of a global corporate minimum tax, which will support both developed and developing economies to increase their tax revenues and create a more equal playing field for all actors.
Endorsing that proposal, Pascal Saint-Amans, Director of the Centre for Tax Policy and Administration of the Organisation for Economic Co-operation and Development (OECD), also joined other speakers in calling for more capacity-building on auditing, noting that over $1 billion has been raised to date by a programme known as “tax collectors without borders”.
During a second panel on “Taxation and the environment”, participants shared their national experiences with economic measures implemented to fight climate change and reverse environmental degradation, including comprehensive fiscal reforms that include frameworks of taxes on pollutants and emissions. Speakers considered the role of different financial instruments that can support or hinder climate change mitigation efforts, such as carbon pricing and fossil fuel subsidies, respectively, as well as the role of green fiscal policies in post-COVID-19 recovery plans. Some speakers also sounded the alarm about challenges posed by the pandemic in that critical arena, including scaled back environmental efforts as countries grapple with the pandemic’s economic fallout.
A third panel focused on the theme “Taxation and financing for health systems”. Panellists noted that COVID-19 has exposed the vulnerability of national and local capacities in all countries, especially least developed countries and others in special situations, and has greatly intensified pressure on public finances. Among other things, they debated the merits of well-designed taxes to promote healthy lifestyles — such as those levied on alcohol, tobacco and sugary or artificially sweetened beverages — and discussed a range of other health-related tax policy responses, including tax concessions for health care workers.
The Council will reconvene at a date and time to be announced.
MUNIR AKRAM (Pakistan), President of the Economic and Social Council, said the adverse economic and social repercussions of the COVID-19 pandemic have reversed hard-won development gains, exacerbated inequalities and laid bare challenges with the world’s system of international cooperation. Even before the pandemic, the world was not on track to achieve the Sustainable Development Goals by 2030 and the commitments of the Paris Agreement on climate change. Those challenges are now compounded by a multidimensional health and socioeconomic crisis, as well as by climate change, biodiversity loss and environmental degradation.
Against that backdrop, he said, international tax cooperation will strengthen and help fund cross-border public goods and crises-resilient health systems and help countries achieve an effective health response to the pandemic — including a large-scale immunization that delivers vaccines to all countries and people that need them. “We live in an increasingly interconnected global financial system with advances in technology that continue to reduce certain barriers to goods and financial flows,” he said. Member States must work together to stop the drainage of resources for sustainable development caused by illicit financial flows, as well as corporate and personal tax avoidance and evasion. Noting that a minimum global corporate tax as one path forward, he said taxation of the digital economy could also bring major benefits to developing countries.
Noting that the Economic and Social Council has embarked on a range of initiatives to ensure no country is left behind in mobilizing revenues to fund a sustained recovery from the pandemic, he said those efforts include recent guidance to help resource-rich developing countries to collect appropriate levels of revenue to finance their development, and to invest in safety nets crucial for achieving the Sustainable Development Goals. Today’s three panels will provide an opportunity to examine the role of tax policy in supporting the achievement of the Goals, by helping to tackle such challenges as inequality, climate change and health crises. “Let us make full use today of [the Council] as an inclusive platform to intensify our collaboration on tax matters in support of a sustained and inclusive recovery from the pandemic,” he said.
CARMEL PETERS, Co-Chairperson of the United Nations Committee of Experts on International Cooperation in Tax Matters and Policy Manager at the Inland Revenue Department of New Zealand, said the Committee of Experts — an expert body of the Economic and Social Council — is a diverse group of 25 members nominated by Governments and appointed by the Secretary-General, which works with a broad range of stakeholders from international organizations, academia, civil society and the private sector. It aims to help countries mobilize domestic resources for sustainable development by broadening their tax base, strengthening tax administration and helping curb tax avoidance and evasion. Among other products, the Committee develops practical guidance for Governments and tax administrators, to support both domestic tax policies and international tax cooperation.
“The COVID-19 pandemic and its social and economic impacts have increased fiscal vulnerabilities and risks across the world,” she said. Against that backdrop, the United Nations Tax Committee provides a unique platform to address the concerns of developing countries in international taxation, cooperatively addressing different perspectives in a way that adds value for the international system as a whole. That focus is influencing the Committee’s work and also how it is communicated and understood, she said, adding that the current membership has generated a wealth of tools and products to increase domestic resource mobilization to finance the Sustainable Development Goals and to “build back better from the pandemic”. One recent example was the inclusion of an article — allowing a contracting State to tax income from certain digital services paid to a resident of another contracting State — into the United Nations Model Double Taxation Convention between Developed and Developing Countries, she said.
ERIC NII YARBOI MENSAH, Co-Chairperson of the United Nations Committee of Experts on International Cooperation in Tax Matters and former Assistant Commissioner of the Revenue Authority in Ghana, said the Committee’s guidelines mark a “practical response” to the international debate on ending tax exemptions on certain projects. They aim to help countries mobilize much-needed resources. With the effects of climate change becoming an alarming reality, he said the Committee developed a handbook on carbonization and updated another for the extractive industries. Both aim to help developing countries decarbonize their economies and ensure their fair share of revenues from the fossil fuels they choose to use. In addition, the Committee updated a manual on transfer pricing to be used as guidance in the fight against profit‑shifting.
He went on to draw attention to another handbook published by the Committee on dispute resolution, emphasizing that fair and effective dispute resolution is important for attracting and maintaining foreign investment. Noting that the Department of Economic and Social Affairs provides capacity-building support, based on norm-shaping by the United Nations Tax Committee, he said Committee members, in turn, engage with the facilitators and thereby strengthen their work.
LIU ZHENMIN, Under-Secretary-General for Economic and Social Affairs, said the spiralling of the global health crisis into economic and social emergencies underscores the critical importance of today’s special meeting. In the search for solutions, stark decreases in tax revenues and stimulus spending are draining State coffers and it will be impossible to avoid “a lost decade of development” without strengthening domestic resource mobilization, and cooperation on tax matters. In that context, he echoed the Secretary-General’s call on Governments to consider a solidarity or wealth tax on those who have profited during the pandemic, in order to reduce extreme inequalities. The United Nations will continue to help developing countries build capacities to ensure that tax revenues can be generated and collected. In addition, “we need to make the quantum leap towards carbon neutrality”, he said, emphasizing that placing a price on carbon would essentially shift the tax burden from taxpayers to polluters. He therefore urged Governments to coordinate efforts on environmental tax policies.
With COVID-19 exposing the enormous risks created by underinvestment in health systems, he said today’s special meeting will shine a light on how tax policy and administration can support a sustainable and resilient recovery — notably through tax measures that reduce consumption of tobacco, alcohol and sugary beverages, or more broadly, earmark certain tax income to invest in public health systems. Environmental taxation can also have important co-benefits for health, he added. “Ultimately, we need to advance towards an international tax system that takes into account the interests of all stakeholders and countries,” he said, enabling them to tax value‑creation within their borders. In this effort, citizens — including those below taxing thresholds — are important stakeholders who rightfully expect tax systems to address “the challenges of our times”.
ANNET WANYANA OGUTTU, Professor of Tax Law in the Department of Taxation of the African Tax Institute at the University of Pretoria in South Africa, delivered a keynote address, drawing attention to the potential of taxing high-wealth individuals to contribute to domestic tax collection and the achievement of the Sustainable Development Goals. She noted that, in recent years, an estimated $11.5 trillion has been shifted to off-shore accounts by the world’s super-rich, evading over $250 billion annually, as exposed by the “Panama Papers”. While taxes on inheritance, transfer taxes, property taxes and others have been imposed by some countries, many Governments continue to find it difficult to tax their wealthiest people. Many continue to voice concerns about the impact of such taxes on a population’s willingness to work.
Also spotlighting difficulties in the actual collection of wealth taxes, she recalled that Denmark, Germany, Finland, India, Spain and several other countries have all abandoned their wealth taxes over the last decade. In her country, South Africa, there are calls to impose a new wealth tax; at the same time, many people worry that it will lead the very wealthiest to flee. In that context, she recommended that, instead of introducing a separate wealth tax, developing countries in particular can amend their current tax systems to include higher taxes on those with very high property or income taxes. A minimum personal income tax and capital gains taxes can be used to tax the rich, and data obtained through the increasingly transparent global banking system can help to identify those who own large properties, cars and other luxury goods. International tax cooperation is also required to assist countries in holding their wealthiest individuals responsible for their fair share of taxes. “The ball is now in the hands of Governments,” she said.
The Council then convened the first of three panel discussions of the day. Focusing on the theme “Taxation and inequality”, it was moderated by Stephen Shay, Adjunct Professor at Boston College Law School, and featured four panellists: LiseLott Margareta Kana, Head of International Tax Legislation for the Inland Revenue Service of Chile; Elfrieda Stewart Tamba, Member of the United Nations Committee of Experts on International Cooperation in Tax Matters and former Commissioner General of the Revenue Authority of Liberia; Pascal Saint-Amans, Director of the Centre for Tax Policy and Administration of the Organisation for Economic Co-operation and Development (OECD); and keynote speaker Annet Wanyana Oguttu of the University of Pretoria in South Africa.
Mr. SHAY, kicking off the discussion, agreed with the opening speakers that the COVID-19 pandemic has laid bare and exacerbated pervasive inequalities within and among developing and developed countries. Social protections have been stressed beyond their capabilities and many were not sufficient before the pandemic to meet needs of those who they reached. “No engine is more powerful for redressing disparities in health care, education, work opportunities and effects of climate change than honest, effective and resourced Governments,” he said, spotlighting the role played by taxation and tax policies that advance revenue mobilization and achievement of the Sustainable Development Goals — particularly after the ravages of the pandemic.
Ms. KANA, speaking in her personal capacity and not that of her employer, said appropriate economic policy tools are required to help economies grow, reduce inequality and finance demanding social agendas. “Tax exemptions mean preferential treatment in certain matters, and these exemptions indirectly mean a Government expense,” she said. The elimination of spaces for avoidance, and often the introduction of special measures, depends on a trade-off between different policy goals. Citing a series of recent tax reforms in Chile, she said they were designed without a prior shared analysis. Fiscal resources collected can be spent on programmes or offset reductions in other taxes, helping to reduce inequalities, she said, adding: “This is of special relevance in the current world economic context, in which it is necessary to prioritize State expenditures to face social demands and the consequences produced by the COVID-19 health contingency.”
Ms. TAMBA said leaders must strengthen their prioritization of domestic resource mobilization, as well as the achievement of the Sustainable Development Goals and the African Union’s Agenda 2063. Those efforts require growth strategies that are measurable, time‑bound and supported by international cooperation. Calling for tax policy harmonization, which is currently being considered by Governments across the African continent, she said a well-driven tax harmonization framework will encourage healthy cooperation and the development of infrastructure. She called for accelerated capacity development, with investors increasing their share of investments in both “soft” and “hard” resources, adding that the current emphasis on technical training is a positive trend, but must be accompanied by actual infrastructure investments. She also proposed efforts to support the certification of auditors from developing countries so that more African tax auditors can, on an accelerated basis, obtain relevant specialized certifications.
Mr. SAINT-AMANS, noting that inequality is a question of the distribution of resources both within and across countries, observed that “things are broadly deteriorating around the world” amid the COVID-19 pandemic. When building back better, Governments will need to use tax tools to address growing inequalities, with a stronger focus on capital ownership and fairer tax burdens. Noting that the world has changed — with a new technological frontier in banking transparency that gives developing countries a better opportunity to tax capital — he echoed other panellists’ calls for stronger efforts to build domestic resource mobilization. He also joined other speakers in calling for more capacity-building on auditing, noting that over $1 billion has been raised to date by a programme known as “tax collectors without borders”. He also spotlighted several ambitious proposals recently put forward, including by the new United States Administration, on the imposition of a global minimum corporate tax to be levied on the “winners of globalization”.
Ms. OGUTTU, responding to a question about challenges in imposing taxes on the wealthiest individuals, said South Africa is grappling with glaring inequalities — manifested in vacation homes, fancy cars and other luxury goods — which are obvious to the broader population. That has resulted in many popular protests, she said, noting that “you can only milk people so far”. However, South Africa is also struggling as its wealthiest citizens flee to other countries in an attempt to evade new potential taxes. For that reason, she advocated for alternatives to a pure wealth tax, for example amendments to existing instruments that would raise property tax rates on a country’s wealthiest people.
The panellists responded to several additional questions from the moderator on such topics as the most effective capacity-building measures, ways to implement transfer pricing and the benefits and drawbacks of value-added taxes.
As the floor was opened for questions and comments, many speakers drew attention to current discussions under way in the “Group of 20” (G20) and other international forums on measures to help developing countries escape the pressure to implement tax exemptions — what many termed a “race to the bottom” — and create a more equal playing field, by implementing a newly proposed global corporate minimum tax. Other speakers pointed to the many failed attempts to eradicate so‑called “secrecy jurisdictions” that contribute to tax avoidance, and raised questions about whether solutions to that challenge should be based on financial incentives or enshrined in law.
The representative of the United States underlined her commitment to finding a multilateral solution to the world’s many tax‑collection challenges. Citing such priorities as ensuring that multinational companies pay their fair share and stabilizing the international tax architecture — thereby helping companies compete on an equal playing field — she recalled that the United States recently shared a proposal on the way forward, including the establishment of a global corporate minimum tax, which will support both developed and developing economies to increase their tax revenues and avoid the current “race to the bottom”.
The representative of the United Nations Office of the Special Adviser on Africa agreed that most African countries, with their small economies, are currently forced to compete to capture external demand and therefore suffer from extreme pressure to put in place tax exemptions. “This is a trap,” she stressed, calling for efforts to create the necessary conditions for developing countries to grow their tax bases and generate domestic resources to finance development, link expansion of national tax base to engines of growth, support private sector financing and build a tax system that is credible and competitive.
The representative of Germany said wealth taxes are often under-used by Governments. Tax policy alone, however, is not enough to tackle inequality, and an emphasis is also needed on strong social policies. “We need global taxation policy frameworks that are fit for purpose, and make tax havens a thing of the past,” he said, calling for countries to work together to ensure “fiscal firepower” and end profit‑shifting and the race to the bottom. He went on to praise the current discussions under way in the G20 towards the establishment of a proposed global corporate minimum tax rate.
The representative of Indonesia, noting that tax collection enables the provision of essential public goods and services, said promoting international tax cooperation sends a critical message to countries that taxes have a major role to play in addressing global challenges and responding to the COVID-19 pandemic. Indonesia is committed to that cooperation and is also preparing to issue regulations on carbon trading, he said.
Also participating were the representative of the Russian Federation, as well as speakers for the Civil Society Group for Financing for Development and the United Nations Conference on Trade and Development (UNCTAD).
In the afternoon, the Council held a panel discussion on “Taxation and the Environment”. Moderated by Jessica Shankleman, United Kingdom Politics Reporter, Bloomberg News, it featured presentations by: Patricia Mongkhonvanit, Director‑General, Public Debt Management Office, and Member of the United Nations Committee of Experts on International Cooperation in Tax Matters; Bård Vegar Solhjell, Director General, Norwegian Agency for Development Cooperation; Laura Ruiz, Advisor to the Technical Vice‑Minister, Ministry of Finance and Public Credit, Colombia; and Kurt Van Dender, Head, Tax and Environment Unit, OECD Centre for Tax Policy and Administration, and Member of the United Nations Subcommittee on Environmental Taxation Issues.
Joseph Stiglitz, Economist and Nobel Laureate at the School of International and Public Affairs at Columbia University, presented the keynote address. Achim Steiner, Administrator of the United Nations Development Programme (UNDP), served as lead discussant.
Mr. STIGLITZ emphasized that, to address climate change, an entire portfolio must be used: regulations, disclosure requirements, a broadening of the legal framework, public investments, and importantly, taxes, which are important for financing investment. To make the green transition, it is important to invest in research and development, public transportation and a host of other public investments. This will also require resources. “Revenue and taxation [are] going to play an important role.” A signal must be sent to the economy, because something precious — such as air, for example — is being treated as if it has “a zero or low price”, which is why there is a benefit in enacting a carbon or environmental tax to redirect the economy in a more productive way. “We normally think of taxes as having a negative effect on an economy, discouraging savings,” he acknowledged. However, this is an instance in which they enhance the productivity of the economy.
To be sure, he said environmental taxes have problems, among them, their distributive effects, because different people consume more or less of the tax commodity. Proposals, for example to redistribute the proceeds of a carbon tax to individuals on a lump sum basis, on average might be viewed as “progressive”, but this ignores that — among any income category — there are large disparities in the extent to which individuals consume carbon. He suggested addressing these adverse distributive effects through public transportation, enacted in the appropriate manner. By having more public investment, better regulations and more disclosure requirements, countries can ensure that the magnitude of the carbon price required to limit a 1 to 2°C global temperature change can be achieved through a lower carbon price. He also addressed the social cost of carbon, noting that the models used to calculate this cost have at times been badly flawed, and that “what was state of the art in the 1990s is insufficient today”.
Ms. MONGKONVANIT said that with COVID-induced lockdowns, countries are facing revenue shortfalls and seeking new sources. Environmental taxation can play an important role. Before COVID-19, the environmental performance index ranked Thailand thirty-eighth, as among the top emitters of greenhouse gasses. Thailand has not enacted a law to tax the environment. However, a series of fiscal tools are being used. She pointed to an excise tax on vehicles, which is imposed based on cylinder capacity, and an excise tax on gasoline from benzine among other oils, while biofuels are exempted. Custom duties are also used, as are tax incentives. Thailand provides them as means to promote certain businesses or behaviours. A series of corporate income tax exemptions are given to some businesses, depending on their activities. Another incentive to reduce the use of single-use plastic are corporate income tax cuts provided to those using biodegradable materials. She went on to stress the important role of debt financing, the proceeds of which can be used to help the environment. She pointed to Thailand’s launch of the sovereign sustainability bond — the first of its kind in South‑East Asia; half of the proceeds are directed into social spending and the other half to finance a clean transport mass rail project in Bangkok.
Mr. VAN DENDER examined whether current recovery spending is actually “green” and whether the world can rely on it to chart a sustainable development path. If the status quo prevails, “the answer is no”, he said, citing a report by the University of Oxford and the United Nations Environment Programme (UNEP), which found that less than one fifth of recovery spending today is green. It is mainly concentrated in high-income countries, with less green spending in lower income nations. “It is not too late to make recovery spending greener,” he assured, “but we need other ideas”, probably in the form of taxes. There is a significant scope to use taxes as a way to reach climate and environmental goals. Apart from raising revenue, taxes can place a price on pollution, which then curtails pollution. Taxes also can be used to subsidize clean choices — electric vehicles, for example. Cautioning against the subsidizing of pollution, he went on to stress that taxes can also alleviate the burden of environmental policy on poorer households.
Ms. RUIZ, addressed the social costs of global pollution in terms of health or tax losses, stressing that without proper investment now, there will be lower growth in the medium and longer term. She underscored the importance of spending in a manner that corrects tax distortions. In Colombia, calculations by the Treasury find that without adaptations to climate change, the economy could shoulder 0.5 per cent of gross domestic product (GDP) and increase its vulnerability to natural disasters. She highlighted the need to understand “who is polluting” and ensure that they cover the costs of pollution, pointing to a law in Colombia whose broad objective is to fight poverty, and the broader “polluter pays principle”. Colombia is also exploring options to have “some tax and a blended finance mechanism”. Among other ideas, the Government is exploring options to ensure that vehicle taxes paid are proportional to the pollution made.
Mr. SOLHJELL said these issues are quite complex. It is also about politics. While it is true that “very few people love taxes”, he said “quite a lot of people also can accept taxes because they deliver real goods, like education”. Fewer people love new taxes. It is a complex economic question to address. Describing the most effective tax instruments: “Whatever you can make work in your current policy context,” which has less to do with income and more to do with how much emitters contribute to the economy. Economics is an important tool, but the political economy is equally important. Noting that his agency manages half of Norway’s development cooperation aid, he said it regularly addresses tax, environment and climate issues, citing in particular the “Tax for Development” initiative and various multilateral efforts with the World Bank, OECD and others.
In the ensuing discussion, Mr. STEINER said part of solution to a greener future is found in tax policies, emphasizing that environmental taxation, carbon pricing and the elimination of fossil‑fuel subsidies will be important. Such moves will provide significant revenues that, in turn, can be deployed towards social spending, achieving zero emissions or as nuanced measures to discourage certain behaviours. Taxes on plastics, for example, prompt demand for greener materials. “We are learning new lessons every day,” he stressed, pointing to Indonesia, which is updating its vehicle taxation system, and the G20 is looking to advance discussions on environmental taxation.
The speaker for the International Chamber of Commerce said the business community stands ready to engage with policymakers, expressing support for coordinated multi‑stakeholder approaches to ensure coherence. She encouraged policymakers and Governments to use the most appropriate instrument — or combination thereof — to achieve environmental goals, taxation included. She asked whether the handbook on carbon taxation would be linked to the work of United Nations Framework Convention on Climate Change (UNFCCC).
The speaker for the Civil Society for Financing for Development Group, said discussions of international tax cooperation pointed to the noticeable difference in the way countries approach such discussions. For example, it is broadly accepted that the place to make global rules on climate change is at the United Nations. But, when discussing taxation, OECD countries believe that it is acceptable to set global rules in a body in which developing countries are not allowed to participate on equal footing. She expressed surprise that today’s agenda is what is perceived as domestic tax matters, adding that more than one third of the world’s economies “are not at the table”.
The Council then held a final panel discussion on “Taxation and Financing for Health Systems”. Moderated by Joseph Kutzin, Coordinator, Health Financing Policy, World Health Organization (WHO), it featured presentations by: Carlos Protto, Director, International Tax Relations, Ministry of Treasury, Argentina, and Member of the United Nations Committee of Experts on International Cooperation in Tax Matters; Wesley Kapaya Mwambazi, Assistant Director, Health Financing, Ministry of Health, Zambia; Anne-Marie Thow, Associate Professor of Public Policy and Health, Menzies Centre for Health Policy, University of Sydney; and Vitor Gaspar, Director, Fiscal Affairs Department, International Monetary Fund (IMF). Kim Jacinto-Henares, Senior Advisor, Albright Stonebridge Group, Washington, D.C., served as lead discussant.
Mr. GASPAR pointed out that public debt-to-GDP ratios jumped to 97.3 per cent in 2020. In 2021, the ratio will increase to 99 per cent and thereafter stabilize at just below 100 per cent of GDP over the long term. Explaining that this is an indicator of budget constraints, he said that achieving the Sustainable Development Goals will require large resources. He cited an IMF paper examining the impact of COVID-19 on the prospects of fulfilling the Goals by 2030 in that context. “Taxes, while important sources of revenue for the short and medium term, are not mostly for revenue,” he said, noting that, if they end the behaviours they target, they often do not raise revenue, but their enactment is nonetheless considered a success. Financing a health system should be thought through in the context of enabling the Government in pursuit of sustainable development. This includes use of a well-designed value-added tax, a personal income tax — which is still the best instrument for achieving progressive taxation — and international corporate taxation. He concluded by drawing attention to a free IMF book titled Corporate Income Taxes Under Pressure: Why Reform is Needed and How it Can be Designed, noting that the best way to manage public finances is to think of spending priorities in the context of socioeconomic development. “Improving health outcomes will require more spending and corrective taxation,” he stressed. “Health is a very important priority.”
Mr. MWAMBAZI described Zambia’s experience in the introduction of a two-cent tax on sugary drinks, which was meant to protect local manufacturing and deter competition. In 2019, the Health Ministry proposed a 25 per cent tax. However, the Finance Ministry settled on a 3 per cent levy, lower than recommended and far too low to deter people from consuming a harmful product. The Government raised $4.4 million in the first year. “We discovered we had strong pushback from industry,” which argued among other things that the introduction of the tax was an attempt to discredit countervailing industry information. “It is difficult to say we actually attained our objective,” he acknowledged. Interestingly, the Finance Minister, in his budget speech, said the goal was to protect local manufacturers. Going forward, he recommended that legislators make a strong economic case for enacting taxes and include an analysis on the return on investment.
Ms. THOW said that, from a health perspective, taxes on tobacco, alcohol and sugary drinks are effective, and therefore, there is a significant opportunity for well-designed excise taxes to obtain multiple objectives. Noting that there are tangible health benefits to be gained by reducing the risks of debilitating diseases, she said health-oriented excise taxes can lead to improvements in productivity. They also can raise revenue to fund initiatives that yield economic and social benefits. While they are often opposed on grounds of a perceived adverse effect on the economy, research shows that this impact is negligible, with indications that the net economic effect can be positive, if spending shifts to the service economy. “We know what good taxes are,” she said. They are non‑discriminatory excise taxes designed with health in mind. They consider substitution and incentivize the reduced consumption of unhealthy products, and are characterized by collaboration among health, finance and public policymakers. Institutional structures that support these consultations foster improved policy outcomes and enable wider political support for a tax. She cited “pass through” as a common challenge, with industry seeking to mitigate the impact of a tax in order to maintain its consumer base. However, she said she sees opportunity in helping countries strengthen their health taxes to achieve both health and fiscal policy objectives.
Mr. PROTTO said that, in establishing a tax system, care must be taken so as to not impact investment — which is a requirement for resource mobilization. Stressing that profit‑shifting deprives Governments from achieving their agendas, he likewise pointed out that tax fraud discourages States from achieving equality, which fosters poverty — “which is something that nobody wants”. As the pandemic has put pressure on Governments, there is an opportunity to introduce tax measures as a means to achieve Sustainable Development Goal 3 on health and well‑being. Fiscal policies play a relevant role in the design of health standards, and a capital tax can be used to improve a health system. In such efforts, it is important to pay attention to the impact of an excise tax on the lowest income groups, he said, recalling that the expected outcome is to curtail consumption of an unhealthy product, rather than increase the tax burden on poor households. In the design of any tax policy aimed at serving Goal 3, care must be taken to ensure that policies do not adversely affect the achievement of other Sustainable Development Goals, notably to end poverty. “There is an appetite for Governments to pay attention to health issues,” he said, and an opportunity for the United Nations Tax Committee to explore guidance on how to levy taxes on tobacco, sugary drinks or alcohol.
As the floor was opened for a discussion with the panellists, Ms. JACINTO‑HENARES, the lead discussant, shared the Philippines’ experience with the taxes it imposes on tobacco products. She recalled that the tobacco lobby has historically been very strong, and that, in 2012, the country decided to impose taxes on cigarettes through a broader health tax, with a two-tiered implementation as an initial compromise with the tobacco lobby. It agreed that the funds collected by the tax will be used to pay for universal health care, which helps tobacco companies communicate to their clients that they care about their well‑being. Now, against the backdrop of COVID-19, she said funds collected through health taxes, such as the taxes implemented by the Philippines, should be directed to pandemic and other health-related expenditures.
A representative of the Worldwide Brewing Alliance said the Sustainable Development Goal target of reducing by half the global consumption of alcohol refers to per capita consumption, and especially seeks to reduce “heavy episodic drinking” by individuals. A recent report on alcohol consumption in Europe found that taxes should target products with higher levels of alcohol by volume, which are easier to drink quickly in higher quantities and lead to more intoxication. She contrasted those products with beer — which is expensive to produce and has a low alcohol by volume — and advocated for tax policies designed to nudge consumers away from higher alcohol by volume products.
A representative of the Civil Society Financing for Development Group called for effective short-, medium- and long-term solutions to mobilize domestic resources in a context where “the rich have gotten richer and the poor have gotten poorer”. He spotlighted the need to focus not only on single country taxation, but on how the entire international community can work together, calling for efforts to develop and adopt an international tax convention under United Nations auspices. Concluding, he voiced concern about constraints faced by low-income countries, many of whom are not able to participate in intergovernmental negotiations on an equal footing, or face technical challenges in their efforts to do so. He also expressed concern that OECD continues to monopolize the international agenda.
Also participating was a representative of the Office of the United Nations Special Adviser on Africa among other speakers.
Mr. AKRAM said the session’s panel discussions show that, while taxation has broad potential for mobilizing resources, its implications can be even more far‑reaching. Thanking all the meeting’s participants, he provided his own views on the subject of the afternoon panels — on taxation for environment and health — by stressing that carbon taxes should be designed in such a way that they do not become instruments against developing countries. The revenues of carbon taxation should accrue to those who suffer from the impacts of climate change, and be paid by those who create the emissions, as is only fair. Turning to the COVID-19 pandemic, he also drew attention to the unique needs of developing countries, concluding: “We are living with a health crisis, and we would have been in a better position to face [it] if our health systems had been more resilient.”