Calling countries that suffer from tax dodging ‘poor’ does not accurately reflect the situation. They are often rich in resources, but poor in revenue by virtue of exploitation of global rules in order to dodge tax. They are not inherently poor; instead they have been made poor. The OECD report in 1998, ‘Harmful Tax Competition: An Emerging Global Issue’, is credited with first putting the issue of tax avoidance on the political agenda. By showing how wealthy individuals & MNCs are facilitated by states that are competing for foreign direct investment (FDI), the OECD was prescient in its warning that this may affect states’ fiscal sovereignty. It may ‘erode national tax bases’, ‘alter the structure of taxation’ & ‘hamper the application of progressive tax rates & the achievement of redistributive goals’.
Tax dodging costs developing countries more than they receive in aid. The IMF estimates of long-run revenue loss for developing countries from corporate tax evasion is $200 billion. Corporate tax is more crucial in these countries than Global North countries because in the Global South, a large portion of the population don’t make enough money to earn tax. If MNCs paid the tax in these countries, it could make a huge difference. For example in Zambia, public services have lost an estimated US$27 million as a result of Zambia Sugar’s tax avoidance schemes & the special tax breaks given to it. This is enough money to put 48,000 Zambian children in school. In ‘lower income countries’ tax losses are equivalent to nearly 52 per cent of their combined public health budgets’.
