As an anti-poverty organisation working across the world, Oxfam understands the importance of business. Much of our work helps people overcome poverty by helping them start or be part of small businesses. We also work alongside some of the most successful big businesses to help their business work best for society.
Oxfam also sees on the ground the vital role of taxes. We see how central tax is in ensuring services, tackling inequality, building fair and successful societies and economies, and enabling businesses themselves to thrive.
There is much talk about economic inequality these days. The gap between the rich and poor has reached extreme levels and is continuing to rise.
It’s not just non-governmental organisations (NGOs) and trade unions who are alarmed. A range of people are voicing their concern, from Pope Francis, to billionaire Warren Buffett, to Bank of England governor Mark Carney, to managing director of the International Monetary Fund, Christine Lagarde.
A progressive tax system, including effective taxation of multinational companies, is one of the most important tools a government has at its disposal to address inequality. It generates vital revenues that can be invested in public services and infrastructure which are necessary for a healthy, well-educated workforce, to attract investment, and to generate sustainable and inclusive economic growth.
Conversely, if the tax system places too much of the strain on the least well off individuals, income inequality can worsen. That threatens social stability and economic development and in the end is harmful for all.
Everyone needs to pay their fair share
Tax is not simply a business expense to be minimised. That kind of thinking can lead to abusive tax avoidance practices which are unacceptable, even if they are not always illegal. The best companies know that and recognise that their success is inseparable from the success of the society in which they operate. As one business leader told me, “Corporate Social Responsibility is not the 1% we give. It’s the 100% of what we do.” But some other companies need reminding. And it is often the larger more powerful businesses who fail to uphold the standards – leaving smaller businesses, and the rest of society, paying the price.
Corporate profits have been rising over the past few decades but their increase has not been matched by a rising trend overall in corporate income tax contributions. In fact, on average, the opposite is happening.
The existing global tax rules contain too many loopholes and gaps that enable some multinational corporations to get away with paying little or no tax. Ordinary citizens and smaller businesses bear the burden. A study by the OECD finds that some multinationals use strategies that allow them to pay as little as 5% in corporate taxes when smaller businesses are paying up to 30%.
Revenue loss from some businesses dodging their taxes is especially harmful to poorer economies since corporate tax revenues make up a larger share of their national income. Developing countries are losing billions every year because too many multinational companies exploit tax rules that enable them to make profits “disappear” or move to another country, and pay little or no tax in the countries where economic activity is actually taking place.
Nurse Lucy Chilinda tends to 3 week baby Edith at a hospital in Lilongwe, Malawi. Fair tax systems are vital for generating revenues that can be invested in public services. Photo: Abbie Trayler-Smith/Oxfam
Towards a transparent, fair and robust system
Many business leaders recognise the need for a robust international tax system that is transparent and predictable for business, and contains fair rules that enable governments to raise the tax revenues that are needed to provide for their citizens. But the laggards, the dodgers, are hurting the rest.
All companies need to demonstrate that they are willing and able to be fully transparent about their tax matters, including by publishing where they make profits and where they pay taxes. All companies need to take responsibility for paying their fair share of tax and not exploit loopholes that deprive governments of tax revenues. They should not use tax havens and should pay tax where real economy activity takes place.
Companies should also support global efforts to make tax rules more progressive and fair and should ensure that their lobbying positions are in line with their corporate responsibility positions.
The CBI has rightly pointed out that there is crisis of confidence in business: it is the bad behaviour of some big businesses that has created that. It is damaging business as a whole. That’s why the business community has such a vital role to play in rejecting those companies whose business model is rooted not in creating value but in dodging the rules, so that all pay their fair share. A fair and well functioning tax system creates benefits for all, including businesses, which thrive best in healthy, vibrant, cohesive societies.
Ben Phillips is Oxfam’s Director of Campaigns, Policy and Influencing. Ben has overseen programmes and campaigns in Oxfam, Save the Children and the Children’s Society. Ben has lived and worked in four continents and 10 cities including New Delhi and Washington DC. He began his development career at the grassroots, as a teacher and ANC activist living in Mamelodi township, South Africa, in 1994, just after the end of apartheid.