Tax Justice as a Pathway to Social Justice

by Krishen Mehta

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Krishen Mehta is a writer, teacher, and speaker on issues of global tax justice. Prior to making tax justice his main focus, he was a partner with PricewaterhouseCoopers (PwC). Krishen is a Senior Global Justice Fellow at Yale University and a Senior Advisor to Tax Justice Network. In addition, he serves on other advisory boards, for instance the Advisory Board of Aspen Institute's Business and Society Program and the Asia Advisory Council of Human Rights Watch.

As we know, Socrates said that the “unexamined life is not worth living”. We might equally say that the unexamined economy is not capable of securing our common well-being. It is our obligation to address the fault lines that exist in the global financial architecture and to seek to remedy them.
If the children born in the European Union today expect to live in a stable, sustainable, and sane world, then every child born in Ethiopia, Indonesia, or Bolivia, needs to have the same expectation. We live on a small planet and we are all connected.
There are two important global issues that we need to address if we wish to protect future generations. One is the issue of deepening inequality in almost every country and region in the world. As we all know, extreme inequality is not caused by nature. It is a product of laws and the exercise of power.
The second issue is the need for a fairer distribution of the rewards of globalization. International tax rules determine how nations share the fiscal gains of globalization (who should pay, how much, and to whom) and need to be our focus if we wish to live in a more just and equitable world. 
The two issues mentioned above underlie the close linkage between tax justice and social justice. Very simply, tax resources are needed if we are to reduce inequality, eradicate poverty, and fulfill human rights.


A number of studies show that improvement in tax capacity improves the quality of governance and builds overall state capacity. We need for tax resources to exist if governments are to successfully address the challenges of nation building. Taxes therefore are an essential ingredient to the achievement of social justice.The least expensive way for raising government revenue and financing capital expenditures is through the tax system. Borrowing externally is the most expensive way to raise capital.
Unfortunately, corporations have gotten their share of the national tax burden cut by over two-thirds over the past 50 years, from about 30% in the 1950’s and 60’s to about 8.5% today. A number of companies have pushed the boundary between legitimate tax planning, illegitimate tax avoidance, and illegal tax evasion. Quite a few have taken advantage of tax havens and secrecy jurisdictions in an inter-connected global economy. While not all companies do this, the extent of usage is not insignificant.
It is important for the global community to look at ways to protect the corporate tax base. If it is about 8.5% today, do we want it to continue to go down, or do we want it to perhaps stabilize at about 15-20% of the national tax base? To do this we need to address many issues, some of which are outlined in this brief essay. As an example, we need to address the issue of tax competition not just in developing countries, but also in developed countries. The recent example of Luxembourg is a case in point that needs to be considered. Do we want tax competition from even within the EU? Does it not hurt all the countries that are affected, and which thereby lose their expected revenue base?
We need to address also the pervasiveness of secrecy jurisdictions and shell companies. Let us be very clear: secrecy jurisdictions are places that create regulations specifically and primarily for the benefit of non-resident companies and individuals. They are intentionally designed to facilitate the circumvention of laws in other jurisdictions.
While a good argument can be made in favor of such jurisdictions from the standpoint of channeling foreign direct investment into developing countries, it can also be said that the violations to the public good that are made possible by these jurisdictions often exceeds the benefit. We need to seek ways to support the former, while continuing to address concerns about the latter.
Just because we have a global economy, why should it be so easy to set up an offshore company in the Cayman Islands, owned by an offshore trust in Bermuda, with Trustees in New York City or London, and a secret bank account in Switzerland? Is this the world we want our children to inherit?


One of the ways to diminish the need for shell corporations and secrecy jurisdictions is to have legislation in the developed world that says that violation of laws in other countries would be considered violations in the developed world. And therefore the proceeds of such violations cannot be brought into the developed world. At present the proceeds of crime committed in another jurisdiction can easily be brought into the EU, UK, or the US since the crimes were not committed in the recipient countries. The US$ 20 trillion that is believed to be sitting in various tax havens and secrecy jurisdictions is there in large part because the funds can legally be brought into the developed world.
While we focus on the above, we need to also have high standards with respect to corruption and governance in certain developing countries. Let us not just pin the blame on multinational companies for tax avoidance and feel that our task is done. While it may be true in some instances, it is still only one side of the coin; local corruption and governance is the other side and needs our attention and focus.
As we address the fault lines in the global financial architecture, let us also keep in mind that lower income countries need to be part of the emergence of a new global tax system so that their interests are better represented. If the post-2015 development agenda is to succeed, then fair and effective tax systems must be in place to fund national development plans. This calls for country-by-country reporting by multinational companies, and expanded exchange of tax information among jurisdictions.
We need to also protect whistleblowers. Those who reveal tax abuses have to be offered immunity from prosecution under international law. This is in the public interest, and needs to be a priority for us.
The 17th Century physicists, mathematician, and philosopher, Blaise Pascal, is known to have said, “Justice and power must be brought together, so that whatever is just may be powerful, and whatever is powerful may be just.” That is our challenge in these modern times (19th March 2015).