Taxes and tax avoidance

As the end of the year beckons and the New Year looms, governments in countries where the fiscal year ends on December 31 are undergoing intensive exercises to try and balance their budgets for the upcoming year. Given the extremely difficult economic and financial circumstances worldwide, this is no easy task, as any Finance Minister or indeed official in any such department can testify. There is much head-scratching and hair-pulling, (assuming some hair is still left on those troubled heads), in countries big and small as the year-end deadline approaches.{{more}}

Already, the global economic crisis has left many countries in a tailspin. In the two biggest centres of international capitalism, the United States and the European Union, crippling debts and the irresponsibility of the huge financial conglomerates have left governments trying to strike some sort of balance between the needs of the vast majority of their people and the determination of the financial ‘gods’ to make the working people bear the brunt of the burden.

Spending cuts are most favoured by governments in these countries, especially spending on social needs, along with lay-off of workers, freezing pay packets and even reduction in salaries as in Greece and Spain for example. But there are alternatives proposed and huge mobilization of working people who are pressing for pro-people solutions.

High on this agenda is reform of the tax system which penalises working people and which permits those at the top of the income ladder to get away with fiscal murder. It is an issue best crystallized in the recent US presidential election with President Obama running on a ticket of making the rich pay their fair share of taxes, while his reactionary Republican rivals advocated the butchering of social programmes and further hardship for working people. The Republicans lost, giving President Obama the mandate to bring justice and sanity to the tax system.

The capitalist system is so set up as to permit those who make the most money to find ways of avoiding to pay their fair share in taxes, supposedly in the hope that they will continue to invest, to provide jobs for those of us not so fortunate—the ‘trickle-down effect,’ as it is called. Of course there is need to provide incentives for investment and to encourage those entrepreneurs to continue their efforts for the good of all. But there is also the issue of fairness.

It is a major sticking point on both sides of the Atlantic. Take Britain for example. There, tax avoidance by major corporations and billionaires has become a huge public scandal. Revelations in the media expose what is tantamount to criminal actions by these companies and individuals in employing all sorts of methods, apparently legal, but certainly immoral and unethical, to deprive the public purse of billions of much-needed pounds.

The supermarket giant ASDA, a subsidiary of the US conglomerate Walmart, infamous for its role in price-cutting of bananas, had sales of nearly 22 billion pounds in 2011, making profits estimated at 15 million pounds per week. But it stands accused of paying out over 870 million pounds to the parent company in the seven years up to 2011 for “technical assistance, services and royalties”. This cut the tax bill due to the British government by 250 million pounds.

This is not a unique situation. The coffee retail giant Starbucks deprives Her Majesty’s Revenue of millions by utilizing a string of loopholes to pay less than nine million pounds in taxes over 14 years of operating with sales totalling a whopping three billion pounds. Subsidiaries of global brands like Apple, Google, Amazon, eBay and Ikea are all in more or less the same situation. The campaign organisation, Action Aid, estimates that last year 25 per cent of the FTSE companies avoided their fair share of taxes by the use of tax havens.

That was an issue in the US presidential election with the defeated candidate, Mitt Romney, himself accused of such behaviour. The Internal Revenue Service said that in 2009 there were about 1,470 individuals who earned more than US$ 1 million annually, but who used crafty, if legal, schemes to end up with a net tax liability of $0, that is they paid no tax. The US Government Accounting Office states that between 1998 and 2005, 55 per cent of companies paid no federal income tax in at least one of those seven years.

Closing those loopholes and insisting that those who most enjoy the fruits of the land should contribute a proportionate share to social and economic development is the battle line. It is grossly unfair to insist that workers, with no recourse to tax loopholes, and whose pay packets are set upon by the taxman before those workers get access to them, must pay their share, while those who can most afford it get off lightly.

It is an issue which in our own country we must take up, for the tax burden is unfair and disproportionate for working people who pay taxes. Too many at the top get away with not paying or paying a minimum. Governments are then forced to declare tax amnesties for them after years of non-payment, while particularly middle-class workers are penalised. Tax reform must also be placed on our agenda.

Renwick Rose is a community activist and social commentator.