Poor countries are losing almost $1 trillion a year to illicit financial flows like tax evasion, money laundering and bribery, which would be enough to put an end to all preventable child deaths by the end of next decade, a new report says.
If the money from those illicit flows was invested in better healthcare, the easily preventable child deaths now common in developing countries could be eliminated 20 years ahead of the present prediction of 2050, the analysis by aid agency Save the Children shows.
The Tackling Tax and Saving Lives report says half the countries in sub-Saharan Africa collect less than 17 per cent of their gross domestic product in tax revenue, whereas in rich countries the average is 35 per cent. If all developing countries were to mobilise 20 per cent of GDP in tax, 287,000 child deaths could be averted each year, and an additional 72 million people could have access to clean water. Often tax revenues provide far more financing than overseas development aid, particularly in middle-income countries. In sub-Saharan Africa only eight out of 34 countries receive more aid than they generate in tax revenues.
The powerful G20 group of nations, which Australia is presiding over this year, has drawn attention to weaknesses in the international tax regime costing governments billions in revenue. The Save the Children report underscores how the world’s poorest countries, which often have weak tax collection systems, are disproportionately affected by this global problem.
Using ”conservative scenarios”, the report estimates that as much as $946.7 billion left developing countries in illicit financial flows in 2011.
Save the Children chief executive Paul Ronalds said the billions of dollars being taken out of developing countries each year through illicit financial flows was reducing governments’ abilities to help the poorest and most vulnerable members of society.
”If these illegal processes were stopped, the funds saved could result in getting to zero preventable child deaths two decades sooner than currently expected,” he said.
The Australian government has made international tax reform one of the priorities of its leadership of the G20 this year. Business leaders are participating in the B20 summit in Sydney, which started on Wednesday as a precursor to the G20 leaders summit in Brisbane in November.
In May Tax Commissioner Chris Jordan revealed that rough estimates by the Tax Office show the Australian government could be losing more than $1 billion in potential revenue each year because of the international tax minimisation strategies used by multinational companies.
Co-operation to combat tax evasion received a fillip in February when a G20 finance ministers and central bank governors meeting in Sydney signed off on a global standard for the worldwide automatic exchange of tax information.
The Tackling Tax and Saving Lives report calls for an international agreement on ”country-by-country” reporting by multinational corporations that would require them to disclose profits made and taxes paid in every country they operate in. This would make it more difficult for big companies to shift taxable profits to tax havens.
”Of the largest corruption scandals found, 70 per cent involved anonymous shell companies with the majority of malevolent activity occurring in the British Virgin Islands and the US State of Delaware,” the report says. ”Transparency would help governments, journalists and citizens crack down on this corruption.”
The report also recommends that wealthy countries provide more technical assistance to low income nations to improve tax compliance.
”If the international community works together we can stem illicit financial outflows and recoup millions of dollars for global development,” it says.
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