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Health versus Wealth? The ‘measure’ of our responses to COVID-19

May 20th, 2020

By Sakshi Rai, Programme Consultant at the Centre for Budget and Governance Accountability

The pandemic has laid bare our preexisting fault lines. How governments respond fiscally to tackle the COVID pandemic will determine their ability to respond and the subsequent recovery.

Therefore, there is an urgent need to discuss in depth the measures and actions what policy makers must prioritize to manage the fiscal burden from COVID-19. A great opportunity to do so is about to happen on Thursday the 28th of May, in the virtual conference Health versus Wealth? Tax and Transparency in the Age of COVID-19.

Tax justice and financial transparency are ever more urgent. Will those who are already worst affected and most vulnerable in face of the health, humanitarian and economic crisis pay the price in terms of austerity policies, cuts in public services and crippling debt servicing?  Or will we mobilise resources from those who can pay: corporations and the wealthy?

Some countries are taking early measures to fight financial secrecy. Denmark and France have said that companies headquartered in tax havens should not receive government bailout money. Basing it on the infamous ‘EU blacklist of non-cooperative jurisdictions’ that continues to exclude EU-based tax havens like the Netherlands, Luxembourg, Switzerland and others – the initiative is compromised because of its unsubtle incentive for multinational companies to continue using EU-based based tax havens in an effort to avoid capital flight while doing little for tax justice. Poland has said that only companies that pay taxes domestically in Poland are included, perhaps a more promising principle upon which to base any such anti-tax haven constraint on public money.

As a direct consequence of the imposed lockdowns, public scrutiny of government decisions has receded as democratic spaces are restricted. Many parliaments are not sitting, public consultations and hearings are suspended, freedom of information requests on tax bailouts are refused due to “commercial secrecy”, despite the use of public money to support vast numbers of businesses.

This is especially detrimental when the cost of tackling this crisis and bailing out large corporations continues to fall upon the poor and marginalised. If governments’ response to the financial crisis will once again be more regressive value-added or goods and services taxes, then we know from recent and longstanding experience that the poorest and especially women will be hardest hit.

To start to rebuild an international society worth living after Covid-19 we need a plan that puts human rights at the centre of our response.

‘Emerging proposals consistent with a rights-based approach to reform”

Companies seeking any financial compensation must be asked to disclose their beneficial owners and country by country reports in public. Mandatory public country by country reporting would reveal where they book taxable profits to see if that aligns with the real world or a tax advisor’s fancy scheme.  This information would be especially valuable when imposing an excess wealth tax on the net income for companies that continue to make profit in wartime-like emergencies. Secondly, if a company is found to have in tax havens, they could be charged withholding taxes for transacting with them. The burden of proof would lie on companies to prove publicly how such operations are connected to reality (e.g. selling electricity in the Cayman Islands rather than booking your royalties, capital gains or interest income there).

Proposals for imposing either a ‘Corona wealth tax’ or a one-time earmarked tax on the rich has also gained steam, while Delhi State government announced the “special corona fee” on alcohol as an immediate source of revenue.

Nine Latin American countries are discussing imposing new tax measures targeting the ultra-rich and high-income earners to plug the fiscal gaps in what has been termed as ‘solidarity taxes’.  The UN Economic Commission for Latin America and the Caribbean (ECLAC) proposes that additional financing should go towards a Universal Basic Income (UBI) set at a level to end most extreme poverty once and for all and forever in the continent – a prospect if we dare to call out the hypocrisy crisis.  In Argentina, the discussion at the moment targets 1% of wealth, a small number of 11,000 richest people who have a net wealth of over 2 million USD.  The reason for targeting only the very wealthiest is that the administrative resources to track the hidden wealth, often offshore and under many layers of secrecy as we have no international solidarity as of yet in public ownership registries being common place.

The Federal Board of Revenue of Pakistan is considering a Corona tax on super rich and wealth in their next budget for 2020-21 with an aim to raise 100-150 billion Pakistani rupees ($625 –$ 938 million US Dollars) which would be transferred directly to local administrations to handle the crisis more effectively. Making this important link, the raised revenue to actual humanitarian need, the State duty is to provide the right to healthcare.

On May 4, the Brazilian House of Representatives received a proposal to create a digital services tax on the receipt of revenue from advertising to finally tax the large digital companies that currently find ways of booking profits from advertising revenue in tax havens even when the audience who the advertising targets is in a higher tax country like Brazil in this case

In principle, these appear to be the beginning of progressive proposals but they mean little if there are not meant for frontline responders, farmers, migrant workers and those in distress in tackling the human rights abuses that Illicit Financial Flows present.

The geopolitical fight for fair allocation of taxing rights for developing countries cannot be undermined by poverty regressive and anti-labour policies.

The recovery from the pandemic necessitates the need for just and sustainable economic systems that works for all and not a few.

Sakshi works with the Centre for Budget and Governance Accountability on illicit financial flows, economic justice and gender budgeting can be reached at sakshi@cbgaindia.org

Inputs from Matti Kohonen, Christian Aid.

Please join us on Thursday 28th of May (13.00-15.30 Coordinated Universal Time) for an expert discussion considering what policy makers must prioritize to manage the fiscal burden from COVID-19 

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