With the gravity of global tax reforms increasingly shifting from the Organisation of Economic Cooperation and Development (OECD) to the United Nations (UN), it is vital that billions of people impacted by the tax, particularly in the Global South, should play a pivotal role. Led by the US, the OECD is viewed as an exclusive club of the rich whose interests are rooted in maintaining the status quo of the global economic order, and by extension, the tax rules.
The UN presents the opportunity for equal participation of all countries in debate and decision-making. Hence there is a greater likelihood to achieve equitable allocation of tax rights. As the Global Alliance for Tax Justice (GATJ)’ director, Dereje Alemayehu explains: “The UN Tax Convention presents a historic opportunity for the international tax architecture to deter, rather than facilitate, tax abuses.”
Tax affects our lives in more ways than we care about. Economic-wise, the tax impact can easily be felt through shrinking incomes or purchasing power. Yet the tax impact manifests in political, social, cultural, and environmental dimensions. Jesus’s famous response to a political question, of whether it was lawful to pay tribute to Caesar, the Roman emperor, says it all, “Render to Caesar what belongs to Caesar’’. Tax is a legal obligation.
The lack of conditionalities makes tax a sustainable source of public revenue. There are no excuses for failing to pay taxes even in the face of rampant abuse of public resources as manifested in the reports from many Supreme Audit Institutions (SAIs). That is why citizens must vote wisely to put in power leaders whom they trust and have confidence in as the stewards of their resources.
A necessity clearly expressed by the International Budget Partnership “The government budget decisions — what taxes to levy, what services to provide, and how much debt to take on — have important consequences for all people in society.” This becomes the basis of a principal-agent relationship which defines the fiscal social contract between those that govern and the governed.
On the social contract, French philosopher Jean Jacques Rousseau (1754) observed that individuals surrender their ungoverned individual liberty for collective political power, which is to realise individual freedom-that lies at the heart of democracy.
Daylight robbery
In English, there is a common phrase — daylight robbery whose origins emanate from the imposition of an unfair property tax over 328 years ago in England. People resorted to sealing the windows of their houses with bricks to minimise a property tax obligation based on the number of windows each dwelling possessed. Reflecting on the impact of taxes in most African countries, the situation is much more dire than the daylight robbery analogy. It is a mockery of the Lord’s prayer which says give us this day, our daily bread.
Rather than daylight robbery, the tax feels like a robbery of livelihoods through a quadratic equation. The punitive tax for the poor, significant redirection of taxes to service debt costs, corrupted public expenditure, and how multinational corporations and the rich use to evade or avoid paying a fair share of taxes commensurate with their economic activities.
Many newly employed people have unwittingly suffered in salary negotiations because of conflating gross salary with net salary. An employer offers a gross salary because payroll tax is an employee obligation. The tax is deducted by the employer for easy tax administration. That’s why the pay slip depicts a clear income-sharing arrangement between the employee and the government because of tax. Another twist to the weakening of the bargaining power of workers is caused by profit shifting by multinational corporations.
In addition to paying taxes, the workers are forced to pay for basic public services that governments should ordinarily provide as a return on investment — education, health, and infrastructure such as water and electricity through boreholes and solar panels respectively. It is unusual, in such circumstances, for women and girls to be used as economic shock absorbers. Their caregiving role is converted into an unaccounted subsidy to the economy as unpaid care work.
This is hardly surprising. UNCTAD’s latest publication shows that “high-interest payments are outpacing the growth in essential public expenditures such as health, education, and climate action. In the developing world, home to 3.3 billion people, one out of every three countries spend more on interest payments than on these critical areas for human development.”
IMF influence
Driven by the influence of the International Monetary Fund (IMF), African countries have widened that tax base by removing the list basic of goods from Value Added Tax (VAT) exemption. This has made the price of some basic goods like meat spike, invariably reducing the purchasing power of poor households. Normally VAT ranges from 15% to 20%. One of the basic principles of taxation hinges on the ability to pay.
Those who earn more must pay more and equally so, low-income earners must commensurately pay less taxes. However, VAT imposes the same burden on the poor and the wealthy. Women are the worst affected because the bulk of their income is spent on basic goods and services.
IMF’s logic is that the support intended for poor households through the exemption of food from VAT comes at a significant cost to public revenue. More so, considering that the rich also purchase food and often in large quantities.
As such, the IMF argues that it is more efficient to directly target poor households with progressive income taxes and cash transfers. On the ground, the widening of VAT has not been followed up with tangible relief measures for poor households.
If the IMF and its backers in the Global North are genuinely concerned about protecting the public revenue base, they must not throw spanners in the works of the UN global tax reforms. The unstainable global tax architecture makes it easy for multinational companies to siphon roughly US$243 million daily from Africa. This figure is deduced from the UN’s Conference on Trade and Development (UNCTAD) data showing that Africa loses around US$88.6 billion annually.
Taxes and peace
Taxes are not just a matter of fighting poverty and inequality; they can make a difference between conflict and peace. In Kenya, we have seen the young generation taking to the streets in their numbers to protest high taxes. Most of these taxes are then used to pay exorbitant debt servicing costs resulting in a minimal return in form of essential public services.
The tax riots that shook Kenya recently are not new. History serves us with important lessons. Unfortunately, governments and their economic advisors have chosen to learn nothing. For example, the imposition of unjust taxes was one the reasons for the first installment of the liberation struggle 1896–1897, generally referred to as Chimurenga 1 or Umvukela 1. Back then, a raft of unpopular tax measures was introduced, including the hut tax of 10 shillings per annum.
As countries convene, once more, from July 29 to August 16, 2024, at the UN headquarters in New York, to push towards the finish line of the work plan on drafting new international tax rules, the suffering of the billions of people must be the compass. The daylight robbery must be put to an end. tax loopholes that take away food on the table, and make inaccessible essential public services like health, and education must be closed. Peace and stability also depend on these reforms. The paraphrasing of Stokely Carmichael makes it easier to show the relationship between debt and tax in the socio-economic justice space. We are aware of the fact that an increased debt burden walks hand in hand with an increased tax burden.
More taxes are required to finance debt servicing, thereby prejudicing investment in health and education. The reversal of illicit financial flows is fundamental to shoring up public finance and reducing pressure on the government to contract expensive debt.
Mukasiri Sibanda, is the Coordinator of the Stop the Bleeding Campaign
Originally published by NewZWire and it is republished here with the permission of the writer. No changes were made to the original article.
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