NEW DELHI, SEPT 20: Taxes worth $500 billion, which can help developing countries fund schemes to pull themselves out of poverty, are making way into tax havens due to dodging by rich individuals and multinational companies.

“The impact of tax havens is reaching crisis proportions in the developing world, especially in Africa and Latin America,” says a new paper, The shirts off their backs: How tax policies fleece the poor, brought out by Christian Aid, a UK and Ireland-based organisation, to coincide with the UN Summit in New York, which aims to halve poverty in the world.

Calling for lifting the “veil of secrecy” over tax havens, the report warns that unless massive gaps in poor countries revenues are plugged by responsible tax policies and international action to curb tax havens, the UN’s poverty targets will be missed.

What is adding to the woes of developing countries is the increasing shift in tax burden from the rich to the poor, as a result of tax competition, trade liberalisation and tax havens. This is forcing these countries to meet the domestic portion of the bill for meeting millennium development goals.

While tax competition between countries is forcing poor countries to lower corporate tax rates to attract foreign investment, trade liberalisation has been depriving them of taxes on imports, the paper says. Tolerance for tax havens, too, is helping the rich and MNCs to stack their profits offshore to avoid paying taxes.

“Progressive forms of taxation, such as income, profit or capital gains taxes, are the main means by which wealth is redistributed... yet taxation is facing a crisis in poorer countries,” the paper adds.

Lashing out at the International Monetary Fund (IMF), the report says tax is one source that can help countries determine their own route to get out of poverty, but due to IMF-prescribed changes, there has been a slump in tax collection in low-income countries because of falling tax yields from trade taxes and stagnant direct taxes.

Calling for a world tax authority, since globalisation is ‘here to stay’, the report says it is necessary to share information, monitor the impact of tax policies and protect national policies ‘to make tax systems consistent with public interest on the whole, rather than the public interest of specific countries’.

Since banks are “pivotal” in the world of offshore finance, it recommends that all banks and FIs be legally required to disclose to the relevant authorities all interest, dividends, royalties, licence fees etc. that they pay to citizens and companies across the world. This information should be automatically exchanged between countries. Once this is done, the appropriate tax from the country where the income was earned can be levied by that country’s tax authority. This will eliminate tax havens, the report says.