Economist: Finding the money to fix the world requires a rethink on tax, says Jayati Ghosh
June 13, 2023 The current international economic and financial architecture is inadequate and obstructive in addressing global challenges such as the climate emergency and economic inequalities. World leaders are meeting in Paris to discuss ways to fix this architecture, but the level of ambition seems low. Two global strategies to increase public resources are ending tax avoidance by multinational companies and taxing extreme wealth. Multinationals currently avoid tax payments of at least $240 billion per year due to outdated international taxation rules. Recognizing multinationals as global unitary businesses and implementing a global minimum tax would prevent profit shifting to tax havens. The OECD has been working towards changing the rules since 2013, but the agreement reached in 2021 watered down the proposals and may not deliver significant additional revenue to developing countries. A global minimum tax rate of 25% or even 15% could yield large revenues for governments, but the compromise rate of 15% mainly benefits tax havens. The commitment to divide taxing rights between countries has also been eroded, with only a small fraction of profits available for reallocation across countries. Developing and emerging countries are demanding a more inclusive process and the United Nations has been given a mandate to initiate new intergovernmental talks on taxation. In the meantime, some countries have imposed or plan to impose digital-services taxes, and wealth taxes can be levied nationally to reduce financial inequality and generate revenue. Establishing national registries and sharing information across jurisdictions can help identify the true beneficial owners of assets and prevent tax evasion. Regional meetings and cooperation can also contribute to finding common approaches to taxing multinationals and fighting tax havens. An international tax architecture that benefits all countries is crucial for the well-being of people worldwide.