Benjamin Franklin, Founding Father of the United States of America, once said “the only things certain in life are death and tax” popularising a cliché that proves fundamentally flawed as a truism.
For whereas death is certain, tax is an option as abundantly manifested by the Panama Papers which resonate with the Grenada narrative at many levels and begs a revisit to the state of tax integrity in our country.
There are lessons to be learnt. The Panama Papers is a massive volume of secret documents leaked from the Mossack Fonseca law firm “naming and blaming” tax dodgers all over the world. It is a damning indictment on rich and powerful people who hide their money in offshore tax havens, aiding and abetting “dirty money” laundering, drug trafficking, the arms race, and sanction violations on “rogue nations” like Iran and North Korea.
The global magnitude of the tax scandal, the high profile elites, celebrities, and tycoons involved are simply mind-boggling.
The documents blacklisted football legend Lionel Messi, British Prime Minister David Cameron, movie star Jackie Chan, Vladimir Putin of Russia, a string of FIFA officials, Prince Andrew’s wife Sarah Ferguson, brother-in-law of President Xi Jinping, son of former U.N. Secretary General Kofi Annan, the tip of the iceberg.
Dictionaries and encyclopedias define tax dodgers as entities that, whether legally or illegally, fail to pay their fair share of government taxes using an array of devious ploys.
Tax laws and exchange control regulations are riddled with loopholes, “grey areas”, and fuzzy definitions, which tax dodgers exploit to the maximum.
Tax avoidance is the right to reduce your tax liability by any legitimate means at your disposal. This includes claims to tax exemptions, tax holidays, and duty concessions granted as investment incentives.
Tax evasion, however, is a capital crime punishable by heavy fines, incarceration, even death as in China. It is achieved by corruption, making false declarations, conflating evasion with avoidance, and the deliberate manipulation of tax codes with intent to deceive.
At the highest level of transgression taxable income and assets are hidden in tax havens to cheat the system.
The Panama Papers is an epiphany of gigantic proportions astounding the world with revelations of the clandestine activities of tax dodgers in the inner sanctum of tax sanctuaries. It stands ultimate testimony to the extreme measures people take to deprive governments of their due taxes and that culprits are the wealthiest in society.
The global phenomenon of tax dodging hit developing countries like Grenada the hardest. OXFAM and ActionAid International estimate US$200 billion is sucked away annually from poor economies far exceeding global humanitarian aid and it is the leading driver of the dependency syndrome.
Tax dodging is callous, immoral, and unconscionable especially in the context of developing countries. It is most destructive to the vulnerable demographics of global poverty, damaging pathways to growth, development, and capacity building badly needed for social infrastructure like hospitals and schools.
As a misallocation of resources tax dodging exacerbates growing disparities in income distribution and widens the gap between rich and poor.
Transnational and multinational corporations and their domestic surrogates are arguably the biggest tax dodgers in the world.
Globalisation and financial liberalisation facilitate rapid cross-border capital flows and these corporations spin webs of tricks to repatriate their profits to safe havens.
Just clicking a button electronic fund transfers (EFTs) move billions from country to country in an endless game of “hide and seek” to escape taxation.
“Transfer pricing” is the favourite trick international consortiums use in tax collusions. They switch profits between subsidiaries in high-tax and low-tax or zero-rated jurisdictions before declaring their full profits often paying nothing to countries of profit origin.
The Washington-based Global Financial Integrity (GFI) Commission estimated a U$13 trillion loss to the global economy from transfer pricing.
In 2013 the public exposure of tax cover-ups incriminated a whole bunch of nationals and multinationals in Grenada.
The Mitchell administration reported transfer tax leakages averaging U$500 million in a single decade and embarked on a campaign to stem the hemorrhaging from multinational companies.
In addition, hundreds of privileged and well connected Grenadians, including practicing politicians, were leveraging their power positions to defraud the government millions while the masses were burdened with the full weight of tax imposed under IMF/SAP fiscal policies.
They misrepresented their assets with false declarations, refused to file tax returns, or just bribed the authorities.
These revelations stunned the nation and prompted investigations to crack down on tax violators and make them pay. However, the hullabaloo soon died down and today national tax dodging continues unabated with many professionals still “gaming the system”.
Even Ban Ki-Moon of the United Nations and the IMF’s Christine Lagarde agree that the global tax system is structurally dysfunctional and unfair since it rewards the privileged and powerful and punishes the deprived and dispossessed.
A better version of Franklin’s quotation would be: “In life the only things certain are death and tax on poor people”.