David Rooney

A new social contract?

Taxation is receiving more attention in debates on development.

Emblazoned on the front of the Internal Revenue Service building in Washington DC is a quote from American poet, author and judge, Oliver Wendell Holmes: “Taxes are what we pay for a civilized society ” It is the potential to inspire better governance through raising revenue that matters to civil society, and everyone has a role to play. To act as responsible corporate citizens, companies must pay the right amount of tax and be transparent about it. Yet Christian Aid estimates that developing countries lose as much as $160 billion–greater than the global aid budget–to companies dodging tax.

Civil society groups such as the Tax Justice Network have long been campaigning for an international accounting standard for country-by-country reporting to provide a global picture of the financial activities of companies, where they are making profits and where they pay tax.

This standard, which has reached the desk of the OECD and has the support of the UK government, would assist revenue authorities and civil society in holding companies to account–particularly in relation to complex transfer-pricing arrangements.

The inclusion of such a standard in the OECD guidelines for multinational companies would firmly cement transparency of tax payment as a pillar of corporate responsibility.

Civil society has a role to play in holding governments to account for how they raise and spend revenue. To invest in the social contract, we need to see the benefits and know that everyone is paying their fair share. A growing movement of local organisations in developing countries understands their tax systems and is monitoring budgets and expenditure.

In West Africa for example, civil society groups recently met to discuss the nature of their tax systems under the banner of “No Representation without Taxation”, in recognition of the importance of tax in the democratic process. The prevailing theme at this conference was the need for transparency at national and international levels.

Governments, for their part, must be much more transparent about how they raise revenue and where they spend it, so that their decisions are open to scrutiny. This is particularly important when it comes to decisions about the generous tax incentives given to companies in an effort to attract investment. In reality, many of these incentives do little for the country’s economy and are open to abuse.

Transparency is particularly important for companies extracting oil, gold and other minerals. This is a priority area for the international network, Publish What You Pay. For example, poorly negotiated and secretive mining stability contracts left African governments unable to benefit from the commodity price boom in 2008 and restricted the ability of governments to change domestic tax legislation.

Multilateral organisations and donors have a role to play in helping developing countries raise revenues. Sharing of expertise between revenue authorities is essential, while the use of aid to build more efficient, transparent and stable tax regimes would be a long-term strategic investment.

Governments also need access to information on individuals and companies holding assets in secretive tax havens so they can target those unfairly dodging tax. Significant progress has been made, but civil society organisations are demanding a swift expansion of agreements to include developing countries in a truly multilateral agreement.

A commitment to move towards automatic exchange of relevant information would ensure that information is delivered effectively, when it is needed, rather than requiring tax authorities to jump through extensive bureaucratic loopholes.

Raising revenue in the developing world is not going to be easy, but, in the long term, it would enable countries to chart their own course for development. For it is only when governments are dependent on the economic activity of their own citizens, individual and corporate, that they will truly act in their interests. This is the social contract. This is the challenge for everyone to play their part.

References

See www.christianaid.uk.org

See www.irs.gov

Lambrechts, K. (eds.) (2009), Breaking the curse: How transparent taxation and fair taxes can turn Africa’s mineral wealth into development, Third World Network Africa, Tax Justice Network Africa, ActionAid International, Christian Aid.  




Economic data

GDP growth: +0.6% Q3 2017 year-on-year
Consumer price inflation: 2.3% Dec 2017 annual
Trade: +4.3% exp, +4.3% imp, Q3 2017
Unemployment: 5.5% Dec 2017
Last update: 12 Feb 2018

E-Newsletter

Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Suscribe now

<b>Subscribe now!</b>

To receive your exclusive paper editions delivered to you directly


Online edition
Previous editions

Don't miss

  • Ambassador Aleksander Surdej, Permanent Representative of Poland to the OECD, was a guest on France 24’s English-language show “The Debate”, where he discussed French President Emmanuel Macron’s speech at the World Economic Forum in Davos.
  • The fight against tax evasion is gaining further momentum as Barbados, Côte d’Ivoire, Jamaica, Malaysia, Panama and Tunisia signed the BEPS Multilateral Convention on 24 January, bringing the total number of signatories to 78. The Convention strengthens existing tax treaties and reduces opportunities for tax avoidance by multinational enterprises.
  • Rousseau
  • Do you trust your government? The OECD’s How's life 2017 report finds that only 38% of people in OECD countries trust their government. How can we improve our old "Social contract?" Read more.
  • Papers show “past coming back to haunt us”: OECD Secretary-General Angel Gurria tells Sky News that the so-called "Paradise Papers" show a past coming back to haunt us, but one which is now being dismantled. Please watch the video.
  • When someone asks me to describe an ideal girl, in my head, she is a person who is physically and mentally independent, brave to speak her mind, treated with respect just like she treats others, and inspiring to herself and others. But I know that the reality is still so much different. By Alda, 18, on International Day of the Girl. Read more.
  • Globalisation’s many benefits have been unequally shared, and public policy has struggled to keep up with a rapidly-shifting world. The OECD is working alongside governments and international organisations to help improve and harness the gains while tackling the root causes of inequality, and ensuring a level playing field globally. Please watch.
  • Read some of the insightful remarks made at OECD Forum 2017, held on 6-7 June. OECD Forum kick-started events with a focus on inclusive growth, digitalisation, and trust, under the overall theme of Bridging Divides.
  • Checking out the job situation with the OECD scoreboard of labour market performances: do you want to know how your country compares with neighbours and competitors on income levels or employment?
  • Trade is an important point of focus in today’s international economy. This video presents facts and statistics from OECD’s most recent publications on this topic.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at www.oecd.org/careers .
  • Visit the OECD Gender Data Portal. Selected indicators shedding light on gender inequalities in education, employment and entrepreneurship.

Most Popular Articles

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2018