Cape Town. 220212. Finance Minister Pravin Gordhan delivers his annual budget speech in parliament. Picture Leon Lestrade
Cape Town. 220212. Finance Minister Pravin Gordhan delivers his annual budget speech in parliament. Picture Leon Lestrade

Global tax forum is behind the curve

By Ann Crotty Time of article published Oct 29, 2012

Share this article:

“We are living in a schizophrenic world in which we are being asked how fast we can consolidate our fiscal position and also how fast we can grow our economies,” Minister of Finance Pravin Gordhan told the tax authorities of 116 countries that were attending the fifth meeting of the Organisation for Economic Co-operation and Development’s (OECD) global forum on transparency and exchange of information for tax purposes in Cape Town at the weekend.

He said the schizophrenic demand created a difficult balancing act for governments and that the South African government was supporting growth while targeting medium-term fiscal stabilisation. However, in what appeared to be a reference to the global ratings agencies, he said: “This approach is not accepted by everyone.”

Gordhan acknowledged that governments throughout the world were facing a multiplicity of challenges as a result of the 2008 financial crisis, which had severely dented economic growth and cut back tax revenues.

He said many governments had to work out whether or not they could afford to bail out their banking system. Where they did so, the bailouts “have been a cost borne by the taxpayers”.

Gordhan called on the 116 members to revisit the mission of the Global Forum and to create a more cohesive network that would help to ensure the integrity and sustainability of the global tax system, “but more importantly create a culture of compliance, one in which everyone pays their fair share”.

Gordhan said that it was necessary for tax authorities to “get ahead of the curve” when dealing with wealthy individuals who believed they did not have to pay their “fair share”. He referred to those in “privileged positions” who expected government “to do remarkable things” while paying as little tax as possible.

Gordhan noted that often people who had a sense of entitlement and did not believe they had to pay their fair share of tax “are a step ahead of the tax authorities. The challenge for the tax authorities is to know how to anticipate and not just react.”

The Global Forum, which sought to implement standards of transparency and exchange of information for tax purposes, “is a brilliant idea but it must grow to meet the challenges”.

The minister of finance’s comments were made amid growing concern that the operation of the Global Forum and the standards set by it were not in step with the changing public mood of many of the Global Forum’s members.

Mike Lewis, a policy adviser on tax justice at UK-based ActionAid, said that the forum “is behind the curve”. Lewis said the main body of the OECD had moved ahead of the forum on issues of global tax governance.

In a report, the OECD had set out the need for and the benefits of automatic exchange of tax information between jurisdictions. It said this “can provide timely information on non-compliance where tax has been evaded either on an investment return or the underlying capital sum”.

Lewis said that this went way beyond the standards required to get a clean bill of health from the forum as was evidenced by the fact that many tax havens had been given clean bills of health by the forum. “Within the Global Forum process, jurisdictions only have to commit to exchange information with other countries ‘on request’ where it is ‘foreseeably relevant’ to the administration and enforcement of the domestic laws of the treaty partner.”

Lewis said the “on request” standard essentially meant that tax authorities needed to know almost exactly what they were looking for before they could request information. This situation meant the forum was of limited use for developing countries.

Share this article: