African countries have successfully pushed for a platform at the United Nations to discuss global tax rules on an equal footing.

 

The tax rules would enable these countries to address issues such as tax dodging or avoidance, illicit financial flaws, and harmful tax competition which remain major challenges to raising revenue for their development.

On August 16, United Nations (UN) Member States adopted the Ad Hoc Committee’s Draft Terms of Reference for a United Nations Framework Convention on International Tax Cooperation.

It means governments can finance critical action on extreme poverty, Covid-19 and the climate crisis and by recovering the billions of dollars lost through tax abuse, corruption and money-laundering.

“What this means is that for many years, Africans have been saying that the current tax system is unfair in the sense that it is biased towards rich countries or developed countries and because of that it doesn’t allow developing countries to generate as much revenue as they should from their own resources,” said Chenai Mukumba, Executive Director of the Tax Justice Network Africa (TJNA).

Gaping holeThe new UN Tax Convention is intended to fill the gaping hole in the global financial architecture: the absence of effective institutions for international tax cooperation.

This gap often allows multinationals to dodge taxes in poor jurisdictions while protected by the richer regions.“And it also creates an environment where African countries are losing a lot of the revenue that they generate to illicit financial flows. So what was adopted was the terms of reference of what is supposed to become a tax convention that should ideally create an agreement that is going to address these imbalances in the global tax systems,” said Chenai who participated in the historic vote in New York.

The convention is intended to address a wide range of tax policy issues, many of which have a huge potential for revenue for financing sustainable development and climate protection.

A briefing paper published by Global Policy Forum Europe and partners said that a reform of the corporate tax system could generate $500 billion annually, and a wealth tax on high net worth individuals could turn in an extra $200 billion annually.

The globally coordinated introduction of progressive environmental taxes could not only generate additional revenue, but also would have strong positive steering effects on promoting sustainable development worldwide.

The UN Tax Convention therefore has considerable potential to close the gaps that exist in terms of financing sustainable development, which are both in the north and south.

Governments, through additional tax revenues, would also be able to offer more public services to implement their human rights obligations.

A more effective international tax cooperation, such as the new convention, would enable it, creating a clear win-win situation.

Speaking on behalf of the Africa Group during the negotiations, Nigeria hailed the vote as a win for all countries that have fought for an international tax system that is just and inclusive.“The UN Tax Convention process represents the first time that all UN Member States can come together on equal footing, to create global tax rules,” Nigeria noted.

While noting that most of the rules governing international tax cooperation have largely been set up by regional groups, Nigeria highlighted that the UN Tax Convention will be a true global body to deal with international tax cooperation and is not set up to replicate the work of any of these platforms.

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