Can the Panama leak usher tax reform in India?

It has been 10 days since the first set of stories from the data dump of Mossack Fonseca and the ensuing #Panama Papers started. Today the Organisation of Economic Cooperation and Development (OECD) has called an emergency meeting to take stock of the Panama leaks, tax havens and the much-needed reforms in the global tax regime. For the uninitiated, OECD is the group of 34 richest countries who are the primary authors of the global taxation regulations. India has observer status in the group.

Will the Panama Leaks and OECD call fix the tax cheating and illicit financial flows problems forever?

First, a few facts. Tax havens and leaks like this one may seem to concern only the super-rich, but in reality, they affect all our basic services as well as our future and shared destinies. Consider this:

1. In 2015 July, the world gathered at Addis Ababa, Ethiopia, for the Financing for Development (FfD) Summit where illicit financial flows and pluralizing the tax regulation process was the major agenda on the table. Developing countries, including India, wanted a seat at the table. There was an iconic civil society campaign slogan supporting India and other developing countries’ stance: “If you are not at the table, you are on the menu”.

Alas, instead of getting a seat at the table to co-write the global taxation regulations, the outcome of FfD was a UN and OECD engineered Tax-Inspectors-without-Borders, according to which OECD experts would go to different countries to build capacities of tax officials so they can catch tax evaders and cheaters. We have done a detailed Global Summits podcast on FfD, in which the fiasco was also discussed at length.

2. The budget for global social protection for the entire 7 billion global population, to bail them out from natural and man-made calamities and guarantee them dignity in hard times, is about 0.3% of the global GDP. There is also a provision for universal social protection for citizens of the 48 Highly Indebted Poorest Countries (HIPC). This is in the spirit of international solidarity, a hallmark of international laws and humanity. We have done a detailed podcast on this with rationale and calculations too.
3. Africa loses 50 billion US dollars annually to tax avoidance and illicit financial flows per Guardian. Oxfam puts the figure of money lost by developing/poor countries to the same methods at a staggering 1 trillion US dollars annually .
4. Oxfam, the mega-phone on inequality at the Davos World Economic Forum, has launched a report on why and how tax havens fuel global inequality in January this year.
5. In India, the tax-GDP ratio is one of the lowest at 18% (if you believe Bibek Debroy of NITI Ayog) or 10% (going by Thomas Piketty), which is one of the lowest even in the emerging economies. India has witnessed a marginal decrease, almost a flat-line in social sector allocations (health, water sanitation, education, social protection et al) from 3.05% of the GDP to 2.86% of the GDP to 3.15% of the GDP in 2012-13, 2015-16 and 2016-17 respectively. And considering the morbidity burden of India, its health allocations are worse than neighboring Bangladesh, Sri Lanka and even Sierra Leone (that Ebola hotspot from not so long ago).

So is the Panama Scandal the perfect storm?

The alacrity with which OECD has called the meeting — before the meeting scheduled in May by the United Kingdom — shows some alarm. The rules have to be drafted with the participation of the developing countries too. The poor and developing countries are not just victims of tax avoidance when rich multinationals dodge taxes in their political boundaries, but also when their own super-rich citizens use the same secretive channels to dodge taxes.

It will be an irony-just-died moment if the UK was the first to host the meeting on tax evasion considering its second-term Prime Minister David Cameron has been linked to ownership in an offshore company owned by his father, in Bahamas. However, considering so many British territories and crown dependencies from British Virgin Islands, Caymen Islands, Jersey are also tax havens, the UK does have a responsibility.

Perhaps after the failed FfD of 2015, the Panama exposure of 2016 and the shrinking global social sector and aid budgets are the perfect arguments to fix the system. But that needs as, Duncan Green summarises:

“Voices of the Global South: We need to establish the idea that tax havens are a development issue…we need to have some real people saying the same thing. Some developing country finance ministers……Those voices also need to be at the table on any negotiations, to ensure developing country interests are represented in any big overhaul of the system.”

We also need to find new sources of finance, like the Robin Hood Tax (i.e. taxing financial transactions), and implement public registries with beneficial ownerships, cross-border tax intelligence.

The Indian problem

Considering some of our super-rich and vocal nationalists are also exposed in the Panama leaks, it’s asking for too much if we hope that the OECD conference or the following UK conference will fix the Indian malaise.

Like much else, the Indian tax avoidance is also home-grown partially and legitimised fully. From 2005-06 to 2015-16, the total revenue forgone in the annual budget on luxury items used by the elite has expanded to more than 140%. Gold, diamonds and jewelry write-offs are Rs 61,126 crore. That’s 58% more than the highest allocation for the Mahatma Gandhi National Rural Employment Guarantee Act (NREGA), the programme for the poor and the indigent. And nearly 70% higher than the sum for “agriculture and farmers’ welfare”, as this Outlook article succinctly summarises. Since 2005-06, the amount written off as duties on gold, diamonds and jewellery comes to over Rs 4.6 trillion, which is more than 13 times this year’s allocation for agriculture and farmers’ welfare.

Hence it will take much more than OECD conference to fix our tax avoidance challenge.

A word on the coverage

Many are hailing this Panama Papers exposé as the revival of investigative and collaborative journalism. NDTV’s Ravish Kumar did a fantastic Prime Time with the Indian Express journalists who broke the story in India as part of the International Consortium of Investigative Journalism.

But Wikileaks’ chief editor Julian Assange has a different take. On Al Jazeera’s Listening Post, he stated, considering no one has direct access to the 11.5 million documents except for ICIJ scribes, the world is hearing the story interlocuted via the ICIJ. Al Jazeera’s episode is aptly titled “Has the media censored the story?”

Left-leaning magazines like Counterpunch have questioned the ICIJ’s credentials, considering it is funded by George Soros Foundation, MacArthur Foundation et al, and Guardian chose to break story on Putin’s cellist first, before exposing the David Cameron link.

We haven’t heard the last, either on tax avoidance or on the narrative around Panama Leaks. Precisely the reason why we should track the story from multiple angles and to see if India does take any concrete steps after all this.

Oh, and in case you were wondering why American names didn’t feature in this exposé, that’s because in some states in the United States of America offer complete secrecy and bargain basement taxes, which makes parts of the country a tax haven. How’s that for a local benefit?