G8 still has a mountain to climb on tax avoidance, but it’s made a start

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

Will anything change for developing countries as a result of the G8's agreement to tackle global tax dodging? Melanie Ward provides an answer.

Melanie Ward is spokeswoman for the IF campaign and head of advocacy at ActionAid. This commentary was first published by the Guardian's development section and is reprinted by permission.

“Caroline Muchanga is a market trader in Mazabuka, Zambia. Muchanga works 15-hour days and earns $4 a day if she's lucky, but doesn't always have enough money to feed her family. Despite living in poverty, she pays more tax – in absolute terms – than a British multinational food company with a sugar cane plantation right next to her stall. Such is the injustice of tax avoidance in developing countries.

Developing countries lose three times more to tax havens than they receive in aid. This is money that should be spent on essential development of schools, hospitals, roads and on tackling hunger, not siphoned into the offshore accounts of companies.

So will anything change for Muchanga as a result of this G8?

Developing countries won't be any better off immediately – this will take years, not months. But the process of change has begun. This time last year it was unthinkable that the links between tax dodging and global poverty would feature so prominently at a G8 summit. At points it was bizarre watching David Cameron, the UK prime minister, use language that could have been written by those working in development agencies. Ed Miliband, too, used the opportunity to launch a welcome call to arms in this area.

Tax has arrived as a major development issue. The action at Lough Erne in Northern Ireland did not match the ambition of the UK government's rhetoric but it was probably never going to. Tax avoidance is so ingrained in the international system that there is a mountain to climb in terms of closing tax havens and ending it permanently.

The G8 has inched towards the foothills of that mountain; but the leaders have not yet managed to start their ascent. On Saturday, UK tax havens agreed to sign an existing tax convention that could deliver benefits to some developing countries – that was a pretty good start.

Aside from the success of establishing tax dodging as a global issue, there are mixed results on three main areas. First, on a new agreement on automatically sharing tax information that is vital for tracking down avoiders. The G8 insists their new tax information-sharing deal needs to be open to all countries including the poorest, and this is a welcome shift from cosy deals for rich countries alone. But they've made no concrete commitments yet to ensure that this will really happen or that tax havens will sign up. We still risk a two-tier tax system emerging, with developing countries left trailing.

Second, on ending secret company ownership, the outcome falls short and we have been told that black is white – more secrecy is really more openness. Some countries will gather more information on who really owns what, yet this may still be kept secret from those that need the data most, including developing countries. This strays very far from what former South African president Thabo Mbeki and his African Union panel are calling for to help reverse the illicit financial flows from the continent. It is vital that information is made publicly accessible.

We are heartened, however, that the G8 has taken steps towards requiring companies to report on the profits they make and the taxes they pay in each country where they operate. If this is taken forward in an enforceable, public way, developing countries will be able to realise real benefits.

When those of us campaigning for change first raised tax dodging as a global poverty issue, we were told that we were naive, unrealistic, and uninformed. Yet we have proved that change can happen, and all of those who have walked with us can be proud of the start we have made. But we have a long way to go and it is our job as development agencies to hold G8 leaders to their promises and ensure that the climb towards a tax justice accelerates in the months and years to come. And that is exactly what we'll do.”

The original version of this commentary can be found here.

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