1 There are illicit financial flows<\/p>\n
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- This is a fact<\/li>\n
- It\u2019s also true we will never stop them entirely<\/li>\n
- This means everything we say today is about risk mitigation<\/li>\n<\/ul>\n
2 The questions we need to address<\/p>\n
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- What are the risks?<\/li>\n
- How do they arise?<\/li>\n
- What can actually be done about them?<\/li>\n
- Why is it worth tackling them?<\/li>\n
- Why is it worth expending political capital on this?<\/li>\n
- What are the tools we need to use?<\/li>\n<\/ul>\n
3 What is tax for?<\/p>\n
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- It is assumed that pays for government expenditure.<\/li>\n
- This is at best only partly true<\/li>\n
- Government spending can also be funded by:\n
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- Borrowing<\/li>\n
- Aid<\/li>\n
- Local currency creation<\/li>\n<\/ul>\n<\/li>\n
- So while may have an important role in the funding cycle of government that is not its only use<\/li>\n<\/ul>\n
4\u00a0Tax has other uses:<\/p>\n
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- Creating macroeconomic control of an economy<\/li>\n
- This is through fiscal macroeconomic management<\/li>\n
- Underpinning the value of the local currency by requiring its use to settle tax liabilities<\/li>\n
- Income and wealth redistribution<\/li>\n
- Repricing market failure<\/li>\n
- Incentivising socially beneficial activities<\/li>\n<\/ul>\n
5 The Joy of Tax<\/p>\n
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- Put all these facts together and you have what I call The Joy of Tax<\/i><\/li>\n
- Tax is the single most powerful peaceful instrument a government has to shape the society that it controls<\/li>\n
- The challenge of illicit financial flows is that they undermine any government\u2019s chance of achieving that goal<\/li>\n
- The big challenge of illicit financial flows is not then the money alone - however important that is<\/li>\n
- The big challenge of illicit financial flows is that they challenge the ability of the state to deliver a whole range of policy options that it wants to create on behalf of those who live in the jurisdiction for which a government is responsible<\/li>\n<\/ul>\n
6 How to tackle this?<\/p>\n
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- The choice to date has been to blame some now familiar villains\n
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- Organised crime<\/li>\n
- Those who are corrupt<\/li>\n
- Multinational corporations<\/li>\n
- Tax havens<\/li>\n<\/ul>\n<\/li>\n
- The response is\n
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- Anti-money laundering measures<\/li>\n
- OECD BEPS<\/li>\n
- Country-by-country reporting<\/li>\n
- Calls for unitary taxation<\/li>\n<\/ul>\n<\/li>\n
- Trust me, I buy them all<\/li>\n
- But the time has come to go further<\/li>\n<\/ul>\n
7 We need new tools to identify and tackle tax abuse<\/p>\n
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- There are two key new tools:<\/li>\n<\/ul>\n
1.Measuring <\/i>tax <\/i>gaps<\/i><\/p>\n
2.Undertake tax spillover assessments<\/i><\/p>\n
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- These require political will<\/li>\n
- And they require funding - if necessary from the IOs to help achieve this \u2014 which is something I am explicitly calling for<\/li>\n<\/ul>\n
8 The tax gap (1)<\/p>\n
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- The tax gap is a measure of the tax that could be but is not collected by a government<\/li>\n
- All countries have a theoretical tax yield they could collect based on current GDP and law<\/li>\n
- They don\u2019t get it because of the tax gap, which comes in five parts<\/li>\n<\/ul>\n
1 The cost of tax bases not taxed, such as wealth (A)<\/p>\n
2 The cost of tax allowances and reliefs a government grants (B)<\/p>\n
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- Take these two off the theoretical tax base calculated on GDP and you get the technical tax yield. Then deduct<\/li>\n<\/ul>\n
3 Tax evasion (C)<\/p>\n
4 Tax avoidance (D)<\/p>\n
5 Tax bad debt (E)<\/p>\n
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- And you get to tax actually paid<\/li>\n<\/ul>\n
9 The tax gap (2)<\/p>\n
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- The tax policy gap is<\/li>\n
- Tax bases not taxed + tax reliefs given away<\/li>\n
- = A + B<\/li>\n
- The tax compliance gap is<\/li>\n
- Tax evasion + tax avoidance + tax evasion<\/li>\n
- = C + D + E<\/li>\n
- The total tax gap is:<\/li>\n
- Theoretical tax base based on GDP<\/li>\n
- Take away A + B + C + D + E<\/li>\n
- = Tax actually paid<\/li>\n
- Every government had to know these figures, I suggest, or they\u2019re not in control of their economy<\/li>\n<\/ul>\n
10 Tax spillovers<\/p>\n
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- Tax spillovers assess the likelihood that one part of a tax system causes harm to another part of a tax system, either domestically or internationally<\/li>\n
- Tax spillovers happen domestically and internationally<\/li>\n
- They involve all taxes, but especially direct ones<\/li>\n
- And they involve the administration of tax as well as the taxes themselves<\/li>\n
- The IMF has tried to appraise them quantitatively but this has proved to be very hard<\/li>\n
- Professor Andrew Baker of Sheffield University and I now propose a qualitative measure<\/li>\n<\/ul>\n
11 Qualitative tax spillovers - the assessment grid<\/p>\n
- And you get to tax actually paid<\/li>\n<\/ul>\n
- Take these two off the theoretical tax base calculated on GDP and you get the technical tax yield. Then deduct<\/li>\n<\/ul>\n
- There are two key new tools:<\/li>\n<\/ul>\n
- Put all these facts together and you have what I call The Joy of Tax<\/i><\/li>\n
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