Are tax avoiders guilty of homicide as shortages of beds and respirators at hospitals during the COVID-19 pandemic resulted in the deaths of thousands. Perhaps tax evaders are not just guilty of lawlessness but are even more violent than the anarchists during the lockdowns. Tax is political. Who we tax, and why we tax, takes us back to the ultimate issues of ‘fairness’ and ‘equality’. Tax is an expression of cultural code and some countries have nurtured an active tax avoidance industry.
Funding the recovery will require structural changes and a robust tax system. We cannot pay for the recovery with multi-coloured M&M’s. Funding the post-COVID-19 recovery requires revenue. The sheer scale of state intervention to buttress the economy throughout the epidemic will leave behind a groundswell of debt. It is equitable therefore that those who benefit from bailouts and those entranced by the ecstasy of ecclesiastical funds must contribute to the recovery by scrapping their artificial tax avoidance arrangements.
To flatten the insolvency curve, cartographers have opted for broad sector-wide support programmes rather than repeat the fiasco of the bailouts following the financial crisis of 2008. Still, the cruise ship industry was among the first to seek a bailout although its liners fly flags of convenience to skirt minimum wage laws and to evade taxes.
The mimic men on the other side of the Wide Sargasso Sea quickly followed suit. Virgin Atlantic, a company owned by a tax exile, requested a £7.5bn bailout for the entire industry. In the same week EasyJet paid a dividend of £60m to its founder, Stelios Haji-Ioannou. Tax injustice means that during the Coronavirus pandemic, it is inevitable that money will be paid to people who refused to pay into the system when they had the means to do so.
Tax systems in Latin American and the Caribbean are inclined to be partial towards labour income instead of capital gains and various models miss altogether the value of property and inheritance tax. One consequence of this is increasing wealth concentration, which is even greater than income concentration. Revenues from personal income tax are relatively low, particularly from the highest-income groups. The average effective tax rate for the richest 10% amounts to only 5% of their disposable income. Tax regimes in numerous countries turn on consumption taxes. This shifts the burden to low- and middle-income workers. An archaic and dysfunctional international tax system also provides wealthy companies and individuals with ample scope and manoeuvrability to avoid paying their taxes.
Adding to this are the inexcusable rates of tax avoidance and evasion, with corporate income tax losses ranging from an estimated 27% of potential corporate income tax revenues in Brazil to roughly 65% in Costa Rica and Ecuador. It is estimated that evasion and avoidance of personal and corporate income tax cost Latin America more than US$ 190 billion, or 4% of GDP, in 2014.
In Latin America and the Caribbean, the well-to-do create artificial tax rafts in Monaco or a nearby Caribbean island that allow them to live as a tax exile in their native land. It is despicable. Wicked and shameful. From 2002 to 2015, the fortunes of Latin America’s billionaires grew by an average of 21% per year — an increase that is six times greater than the growth of the whole region’s GDP. What this means is that substantial portions of the benefits of Latin America’s growth are being captured by the well feathered to the detriment of infrastructure development projects that can focus on ports, education, digitizing government records, health care, internet connectivity, transport systems, theatres and museums, parks, cultural capital, alternate energy, and the creative industries.
Tax systems in Latin America are six times less effective than European systems at redistributing wealth and reducing inequality. This extreme income concentration and inequality is revealed by analysis of the tax data available on personal income across the region. Poorly designed tax systems, tax evasion and tax avoidance are costing Latin America and the Caribbean billions of dollars in unpaid tax revenues — revenues which can help governments to tackle education inequality and poverty.
Contagion winners like Amazon will need 100,000 new workers. Netflix and Amazon Prime Video had to downgrade their streaming services in the EU to cope. Remote work has also accelerated the digitisation of the economy. In such circumstances, the introduction of digital taxation becomes even more urgent. The industrialist Mr. Norman Sabga argued the case against unfair competition when regional businessmen must confront the problems of capital outlay in plant and machinery, wages and levies, customs duties, and VAT on the one hand, and the total absence of digital taxes on domiciles that have no physicality, which declare hefty profits, create no employment, and have no related expenses for plant and machinery on the other hand.
Tax relief will also need wide and comprehensive review. Many ventures benefit from vast amounts of subventions although they send nothing to the treasury. Owners of infrastructure companies have implemented complex debt structures that take advantage of generous tax exemptions, and face minimal tax bills despite declaring substantial operating profits. El Dorado is for the taking.