World Economy

Talk About Global Tax

Talk About Global TaxTalk About Global Tax

The head of the International Monetary Fund has said it is time to “think outside the box” on global tax but warned that a proposal by Oxfam to establish a UN global tax body faces huge obstacles.

The British-based charity first put the idea forward last year, arguing that powerful countries write the rules on tax and take advantage of loopholes and offshore tax havens. It suggested that an independent entity could give everyone—rich and poor—an equal say, news outlets reported.

The issue is now back in the spotlight after the Panama Papers leak exposed how the elite conceal their wealth and prompted Barack Obama to call for international tax reform to ensure that “everyone pays their fair share”.

During a discussion at the World Bank’s global parliamentary conference in Washington on Monday, British MP Stephen Twigg asked for reactions to the Oxfam proposal of an intergovernmental UN tax body.

Christine Lagarde, managing director of the IMF, replied that she had not seen it but acknowledged: “I think it’s an area where we all have to think outside the box because there are too many boxes in that tax field and thinking outside the box might be of great interest.”

She warned, however, that nation states would be unwilling to surrender their tax powers to the UN.

“We need to be aware of the massive hurdles and obstacles along the way because taxation for the last century or so has been defined, conceptualized, designed, implemented on a purely territorial sovereign basis. And if anything, levying taxation is considered as an attribute of sovereignty, and anything that takes away from that is going to be very strongly opposed by many countries in the world, many forces.”

  Another Institution

Jim Yong Kim, president of the World Bank, was even more skeptical, comparing the tendency of creating new bodies to that of constantly adding extensions to holiday houses in America’s Cape Cod region. “I think we have to be very careful about thinking the solution to a problem is to add on another institution,” he told the gathering of international MPs.

“If you’re going to add another UN institution it will require some chunk of official development assistance, or ODA, we have to be realistic about where ODA is going. Official development assistance is at about $135 billion, $140 billion, it’s been at that level for a very long time now–it’s not grown. I do not see your parliaments rushing to have a competition to increase taxes and increase your tax base so you can give more aid. I don’t see that happening.”

This year many countries are using their ODA to pay for their own internal refugee problems instead of sending it abroad, Kim added, contending that the World Bank is already working to make taxes fairer and reduce illicit financial outflows.

  Growth Progress

The annual conference at World Bank and IMF headquarters hosts 200 parliamentarians from more than 100 countries as well as leaders from civil society and other organizations. Ahead of global economic figures due this week, Lagarde offered a cautious assessment.

“The good news is that there is recovery, there is growth,” she said. “The bad news is that there’s a little less than we had hoped and that particular growth is fragile and is exposed to potential risks. Those potential risks are probably stronger, higher on the horizon than what we had thought a year ago.”

She identified a Chinese slowdown, lower commodity prices, monetary volatility–leading to capital outflows from emerging countries to safe havens such as the US and Japan–and the refugee crisis as risk factors.

Then there are “almost self-induced political risks”, such as the possibility of the UK leaving the European Union which, she warned, “clearly would create not only major uncertainty but certainly have dark consequences which we are in the process of studying and figuring out”.