Illicit Capital flow from developing countries: Focus Bangladesh

Rezaul Karim Chowdhury, EQUITYBDwww.equitybd.org

Addressing Inequalities

Finland & Bangladesh: A Comparison

Topic Finland

Bangladesh

Per Capita Income US$ 48820 1190Population Density per km2

18 1175

Rank in Human Development Index (UNDP 2014, considering Health, Education, Gender and Economic Condition, Living Standard and Quality of life)

24 142

Major Exports Electrical & optical equipment, machinery, transport equipment, basic metals, timber etc.

Readymade garments, tea, leather, jute and jute goods, frozen foods, chemicals etc.

Tax & Justice FrameworkAddressing National and Global

Inequalities • Human rights (UDHR 1947) is the

basis of Equality and Exploitation free society in global and national level.

• State must introduce Redistributive Justice (taxing rich to support poor)

• Climate change impacts makes us think to be the global citizen. Wherever we live, we are the owner of the global commons / public goods (e.g. ionosphere, waters etc.) .

• Increasing global problems (terrorism, illegal immigration, poverty and inequalities) are behind this.

Is Tax an alternative to Aid?

No! Aid is a Right of Global South to be considered as REPARATION.

Industrial Revolution stands on Colonial Exploitation (Bangladesh and Indian subcontinent is exploited by British colony for 200 years).

$9 repatriates to developed countries (as interest payment and MNCs profit) against $1 of investment + Aid (Eurodad report)

Tax Justice to be a response to address

InequalityIf DEVELOPED countries STOP tax havens,

If UN able to set universal standard of bank and tax transparency for MNC for fair taxes to the countries where they operate

If our states introduce

Redistributive Justice for equal human development especially ensuring access to essential services,

If OUR Tax GDP ratio increases through PROGRESSIVE taxation

How tax havens drain capital flight?

OECD nations and their offshore satellites flow back US$ 1 trillion annually out of developing countries against US$130 billion global foreign aid [i.e. $10 flow back to OECD against $1 aid]

Top ten secrecy jurisdictions : Switzerland, USA, Luxemburg, Hong Kong, Singapore, Cayman island, Lebanon, Jersey, German and Japan.

Tax Policies for Redistributive Justice

VAT in Bangladesh is regressive policy

Under ECF–IMF (Extended Credit Facilities of International Monitoring

Fund) conditionality, Govt. passed new VAT (Value Added

Tax) law i.e. universal VAT rate of 15% in all aspect.

Indirect tax (VAT) is 70% and direct tax (personal income tax) is 30% of the national revenue of Bangladesh. But in developed countries contribution of indirect tax is less then 50%.

VAT in other countries: Nepal 13%, Singapore 5%, Thailand 7%, Indonesia/ Myanmar/ Lebanon/ Vietnam and South Korea 10%, New Zealand 12%.

Essential goods are kept out of VAT considering the poor in those Countries.

Tax justice taking money from rich and giving to poor for equality.

How VAT creates Inequality?

A study by Institute of Fiscal Studied-UK (IFS) said, VAT is always regressive for poor, because it's impinging the poor people and their livelihood in poor since the poor people spend their most of the income behind the essential goods than rich people. The poor people are paying VAT (almost 20% of income) as double than the riches (almost 10% of their come) in UK due to imposed VAT.

IFI framing Tax Policy in Developing

CountriesSub-Sahara countries of Africa introduced VAT with a prescription of IMF

By next 20 years the Tax GDP ratio will be increased more 18%

Most of the countries neither did achieve this target nor change livelihood of poor. But increased the income inequality between poor and rich.

Country 1993 (%) 2008 (%)

Ethiopia 8.3 10.4

Ghana 16.9 19.9

Senegal 12.3 20.9

Malawi 15.6 16.9

Source: “One size fits all" Christian aid report 2009

MNC evade TaxesFour cell phone operators (Telenor, Orascom, Singtel and Airtel) evaded tax of US$403m (SIM replacement)

British American Tobacco evaded taxes US$ 250m (false declaration) in Bangladesh.

Multinational mobile phone companies pressurized govt. to subside free and open competition and win the auction in cheap rate.

Government lost a huge amount of revenue

Succeeded to withdraw the condition of participation of other foreign companies in the auction process

3G mobile auction in India took 34 days to settle and government earned $11 billon upon the expectation of $7.5 billion.

In Bangladesh it took only an hour for the entire auction process without any competition. The Govt. earned only $515 million upon expectation of at least $800 million.

Tax Haven and Bank Secrecy facilitate

Capital Flight and Illicit Financial Flow

Deposit to Swiss Banks from Bangladesh increased by 62% in 2013 than 2012. Financial flows from developed countries to Switzerland is declining at a record low rate.

"My Second Home" program led 25,500 people from across the world to migrated to Malaysia during 2002 to April'2014. 2,874 (11%) are Bangladeshis.

It cost Bangladeshis US$ 448 million. No approval was taken from Bangladesh as Malaysia does not inquire the source of the money.

Similarly, a Bangladeshi can get residence permit in the US and Canada by showing liquid assets worth $500,000.

Bangladesh being 5th Largest remittance source

for India has a Trade deficit of US$6b

Illegal and quasi-legal Indians working in Bangladesh

Major reasons:Religious Minority insecurity

Govt. Tax Rules

Political Regime etc. are servile to Indian Rulers.

Way Forward: Global Tax Justice

Strengthen the role of UN Tax committee in setting universal standard of bank and transparency

Base Erosion and Profit Shifting (BEPS) should not be done alone by G20, there must be participation of developing countries under the umbrella of UN

Country by Country (CBC) reporting and MNC must be primarily accountable to the country where they are having the business.

GLOBALIZE HOPE and GLOBALIZE STRUGGLE for JUSTICE !

ANOTHER WORLD is INEVITABLE for OUR PLANET!