It’s the rate of change that matters

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The FT has noted today that India is introducing tough new laws on tax haven abusers as a reaction to the HSBC scandal.

In a sense this is odd. For a long time the story in India was its refusal to engage with the fact that this data existed and to even formally request a copy.

Now, years after that was the story people are angry. It's not dissimilar to the pattern here, where a few of us have been writing about HSBC and its problems for seven years or so.

But it makes a point. It's not change that matters, per se. Change of perception on HSBC, tax havens and tax abuse has been happening amongst a few for a long time. What appears to be different now is the pace of change. This is increasing, rapidly.

That's the good news.

The task now is to focus this anger. So far the attention remains on a relatively small number of people who abuse tax havens when the big issue is the domestic tax gap. It's certainly true that there has been serious offshore abuse, but domestic abuse is in my estimate at least ten times greater. It's also widespread. Take this graph from the IRS reproduced by the Tax Justice Network in the last few days based ion 2011 work on under-reported types of income:

When there is no information exchange on a domestic data source the rate of non-compliance in the US is as high as 56%.

That's where our tax gap is.

We're gaining momentum on the issue of tackling tax abuse, but until the cancer in our own economy is tackled we're just dealing with peripheral symptoms. We need the same rate of change on this issue as we do on tax haven abuse.