The hidden wealth of some of the world’s most prominent leaders, politicians and celebrities has been revealed by an unprecedented leak of millions of documents that show the countless ways in which the rich can exploit secretive offshore tax regimes.
Already in 2014 former president Thabo Mbeki reported that according to estimates Africa loses $50bn a year in government revenues to creative accounting, often involving tax havens.
However, it took the now famous “Panama Papers” to put the topic of tax on the global agenda. Tax authorities in countries such as Australia, New Zealand and the UK have already said they will be looking into allegations of tax evasion and money laundering resulting from the leak of the confidential data. The ripple effect of the release of the Panama Papers is likely to have a big impact on the global financial community as a whole.
The reality is that globalisation has impacted the way in which we do business and dramatically increased cross-border financial activities. This places a greater emphasis on the need for increased collaboration between tax authorities to curb tax evasion and to ensure fair allocation of taxes according to jurisdictions.
Unfortunately some of the world’s wealthiest individuals and multinational companies, able to afford ingenious lawyers and accountants, have figured out ways to avoid paying enormous amounts of taxes using tax havens.
If these individuals pay less in taxes, it has two very negative consequences. First, it leads to wealth inequality because it is so easy for them to accumulate more wealth and remain at the top of the wealth distribution. It also means that for a majority of the population it is very difficult to accumulate more wealth, because the taxes that are evaded at the top have to be compensated for through higher taxes for the rest of us.
Recently the Organisation for Economic Co-operation and Development (OECD) developed a Common Reporting Standard (CRS) for the automatic exchange of information relevant to tax. Over 50 jurisdictions have agreed to comply with the CSR, including South Africa, a positive step for all on this issue.
Industry players say that over the next couple of months we will see even more initiatives to crack down on traditional tax havens. But some of these plans could take years to implement because of the time it takes to negotiate tax treaties and amend domestic laws. One thing is for sure tax has suddenly become a hot topic and it will be interesting the developments around tax and tax havens over the next couple of months.
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