Source: United Nations 4
While Technology Optimizes Collections, Globalization, Digitization Also Open Loopholes to Evasion
(Note: Full coverage of today’s Economic and Social Council meetings will be made available after their conclusion.)
Speakers stressed the need for stronger global action to harness the power of taxation as a catalyst for sustainable development at today’s Economic and Social Council special meeting on international cooperation in tax matters.
As the United Nations framework convention on this topic moves into the negotiating stage, the special meeting brings together Member States, members of the UN Committee of Experts on International Tax Cooperation (UN Tax Committee) and other stakeholders. This year’s meeting addressed two themes: inclusive and effective international tax cooperation and gender inclusivity through tax policy.
In his opening remarks, Robert Rae (Canada), President of the Economic and Social Council, highlighted the 20 years of dialogue between the Council and the UN Tax Committee — comprising 25 members nominated by Governments and appointed by the UN Secretary-General — as “an effective model of how the United Nations system can mainstream specialized policy areas” across the broader development agenda. “Fair tax systems and effective fiscal policies are powerful tools to mobilize resources [and] reduce inequalities,” he said.
Echoing that, Li Junhua, Under-Secretary-General for Economic and Social Affairs, noted that developing countries continue to lose significant resources through tax avoidance and evasion. Stronger domestic tax administration and effective international engagement are necessary to address this. It is further important to address systemic gender disparities by revealing hidden biases in tax policies, he added.
Liselott Kana, Co-Chairperson of the UN Tax Committee, outlined the work of the expert body, including its updates to the UN Model Tax Convention and the Manual for the Negotiation of Bilateral Tax Treaties. These updates “have significantly increased the UN Model’s profile and its influence in bilateral tax treaty negotiations”, she said. The Committee’s work has expanded beyond traditional international tax issues to address domestic resource mobilization, she said, adding: “This is the real world in which tax policymakers and decision makers have to operate.”
Maria José Garde, Director-General of Taxation at the Ministry of Finance of Spain, highlighted that country’s experience with a highly digitalized tax administration. Digitalization makes it possible for tax administration to become more efficient, facilitate compliance and simplify processes. It also facilitates the use of artificial intelligence (AI) and big data to fight fraud and tax evasion. However, it has also opened the door for tax evasion and avoidance, she pointed out. Taxation does not only mean collecting taxes — “it’s also a powerful instrument to make progress and against inequality” through progressive policies that tax major fortunes or corporations, she pointed out.
In a panel discussion moderated by Mathew Gbonjubola, Co-Chairperson of the UN Tax Committee, speakers examined challenges and opportunities to strengthen domestic resource mobilization.
Ramesh Narain Parbat, Head of Tax Policy Division, Central Board of Direct Taxes at the Ministry of Finance of India, shared lessons from his country’s pathway towards a double-digit growth rate in direct tax collection. He highlighted two financial social-welfare schemes — both linked to a unique identification number, enabling digitalization and obliteration of leakages. The Government has also encouraged mobile-based digital payment platforms, which vegetable vendors now use to deposit and save money more efficiently, he said.
The global tax system today reflects old economic realities, he said, noting that taxing rights have historically been tied to physical presence, which is outdated in today’s digital economy. Digital businesses can make a lot of money in different countries, but pay little or no taxes. Further, a fair allocation of tax rights must recognize the interconnected global supply chain value creation, he stressed.
Africa Loses $100 Billion Yearly to Illicit Financial Flows
Chenai Mukumba, Executive Director of Tax Justice Network Africa, noted that Africa loses $88.6 billion to $100 billion annually due to illicit financial flows — “resources that should be funding public services”. Multinational corporations exploit gaps in transfer pricing rules, tax treaties and secrecy jurisdictions, reducing the continent’s tax base. This has caused many African Governments to revert to regressive tax systems. Kenya’s July 2024 protests over tax hikes illustrate this, she pointed out, adding: “Overreliance on consumption taxes disproportionately affects lower-income populations, while high-net-worth individuals and large corporations remain undertaxed.” “The current international tax system is fragmented,” and dominated by exclusive decision-making bodies, she said. A UN tax convention could establish binding rules on corporate taxation, transparency and exchange of information, ensuring all countries have equal decision-making power. African countries need a greater share of taxing rights to reflect the economic activities occurring within their borders. “This looks like redesigning tax treaties to prevent excessive revenue losses and ensuring a fair allocation of profits,” she said.
“Tax is a jealously guarded sovereign right,” said Ben Dickinson, Deputy Director of Organisation for Economic Co-operation and Development (OECD) Centre for Tax Policy and Administration. Countries choose to collaborate on taxation only where international collaboration is important for their domestic policy goals. Also drawing attention to United Nations Development Programme’s (UNDP) partnership with Tax Inspectors Without Borders, he said it has helped countries realize over $2.4 billion in additional revenues.
While there has been important progress in international corporate taxation, “no one area of tax policy will suffice to mobilize the scale of revenues required”, he warned. Therefore, it is crucial to look at all policy areas, including value added tax, personal income tax, social security contributions and property taxation.
The second part of the same panel discussion focused on “Taxation of Cross-Border Services — a multi-faceted approach” and featured the following panellists: Thulani Shongwe, Head, African Multilateral Cooperation, African Tax Administration Forum; Marcio Ferreira Verdi, Executive Secretary of the Inter-American Center of Tax Administrations; and John Connors, Chair, Global Tax Commission, International Chamber of Commerce.
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