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UK should stop blocking G7 financial reforms needed to support developing countries’ Covid-19 response

June 2nd, 2021

Washington DC – The UK should stop blocking attempts to implement a global minimum corporate tax that enables developing countries to raise much-needed funds for the Covid-19 response, according to the Financial Transparency Coalition (FTC).

The UK – which is hosting the G7 finance ministers’ meeting on June 3-4, ahead of the summit in Cornwall on June 11-13 – says the aim is to “unite the leading democracies to help the world fight and then build back better from coronavirus.” This year’s G7 meetings will include India, South Africa, Australia, and South Korea.

Yet the UK is opposing US President Joe Biden’s proposal for an effective minimum rate, which was initially set at 21 percent but has since been lowered to 15 percent. This is far from the 20- to 30-percent range recommended by the UN Financial Accountability, Transparency and Integrity (FACTI) Panel in early 2021, a measure also backed by the OECD and other international institutions, that would enable developing countries to fund basic social protection measures and purchase vaccines amid the ongoing pandemic.

Chenai Mukumba, Policy Research and Advocacy Manager at Tax Justice Network Africa, said, “While introducing a global minimum tax is not a panacea to the problems within the global tax system, it will go a long way in addressing the issue of low corporate tax collection in many developing countries. The biggest enablers of global corporate tax abuse include the UK, its overseas territories, and other European countries such as the Netherlands, Switzerland, and Luxembourg. As such, while the UK and other European countries continue to benefit from propping up the current global tax system, African countries are suffering from not being able to domestically mobilise resources to support their response to, and recovery from, the pandemic.”

“The biggest enablers of global corporate tax abuse include the UK, its overseas territories, and other European countries such as the Netherlands, Switzerland, and Luxembourg.”

“We therefore call for the increased participation of African countries in charting the way forward on the global corporate tax rate, and are of the view that enablers should not lead in charting the way forward in tackling abusive tax practices,” Mukumba concluded.

As FTC Director Matti Kohonen added, “The UK is hosting the G7 summit and is calling for a strong Covid-19 recovery. However, in reality the British government and other developed countries are lobbying the OECD to block attempts to generate the funds that developing countries desperately need to fight this crisis by expanding social protections to those most impacted, primarily by opposing the introduction of a global minimum corporate tax of at least 25 percent.”

The UK is also blocking other key measures that would alleviate developing countries and enable them to protect their citizens amid the Covid-19 pandemic, such as opposing private creditors from being part of the G20 debt suspension mechanism. 

Making matters worse, a recent FTC report revealed that 63 percent of Covid-19 recovery funds in 8 of 9 developing countries surveyed – including Kenya, South Africa, El Salvador, and Bangladesh – went to support big corporations. In contrast, only 22 percent of funds were allocated to social protection, and almost nothing went to informal workers who often constitute the majority of the workforce in those countries.

Madhav Ramachandran, FTC Programme Manager analyst at the Centre for Budget and Governance Accountability, said, “Developing countries like India are struggling to provide basic social protection measures for their citizens. A race to cut corporate taxes, amongst other things, has been a major reason for the reduction in state finance for welfare measures. The G7 must act to stop this alarming trend by backing a global minimum corporate tax, as well as pushing for a digital tax – a proposal which the Indian state has introduced, but which is being opposed by the United States.”

The FTC and its members call on the G7 countries to urgently support the following concrete measures:

  • Implement a minimum corporate tax rate of at least 25 percent in line with the proposal by the UN FACTI Panel, introduce a digital tax, and tackle tax abuse and evasion practices, which would raise much-needed funds for recovery spending.
  • Adopt higher taxes on the wealthy, corporations, and high-income earners, in line with the International Monetary Fund’s proposal to introduce solidarity taxes, and reverse the regressive pandemic-related tax cuts and tax exemptions that have only benefited the rich.
  • Introduce effective accountability and tracking mechanisms to provide transparency on the disbursement of Covid-19 bailout funds, including those provided by international organisations such as the World Bank and the IMF.

For interview requests, contact press@financialtransparency.org

 

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