Inequality and poverty: the hidden costs of tax dodging

Tax havens fuel inequality and hold back the fight against poverty. This simply has to stop.
Tax havens fuel inequality and hold back the fight against poverty. This simply has to stop.

Our world is not short of wealth. The size of the global economy has more than doubled over the past 30 years. In 2014, its value reached nearly $78 trillion.

Yet, the gap between rich and poor gets wider, with a massive increase in wealth at the top, while the total wealth owned by those at the bottom is falling. In 2015, the richest 62 people on the planet owned as much as the poorest half of humanity. 1% now have more wealth than the rest of the world combined.

One of the key trends underlying this extreme inequality is a systematic abuse of an unfair global tax system that has reached unprecedented scale and stands in the way of ending global poverty.

What is tax injustice ?

Since 2014, a huge number of documents – including the recent Panama Papers scandal – have been leaked by the International Consortium of Investigative Journalists (ICIJ) unveiling the secret life of corporate and individual tax evasion and avoidance.

They have highlighted the sheer scale of wealth and profits that are being held offshore, through a complex and loosely regulated tax system, where multinational companies and wealthy individuals actively seek to reduce their tax burden and increase their profits.

Tax havens are at the heart of this system. They allow income and wealth to flow offshore, untaxed and in secret, out of reach from tax authorities and regulators. They deprive governments of the resources they need to provide vital public services, like health and education, and to tackle rising inequality.

Who benefits ?

The big winners are those at the top. Across the global economy, wealthy individuals and multinational corporations use their position and influence to capture economic gain for themselves and use economic structures to their benefit.

A powerful example of this broken system is this global spider’s web of tax havens and the industry of tax avoidance. It is the wealthiest individuals and companies – those who should be paying the most tax – who can afford to use the services offered by companies like Mossak Fonseca  as shown in the Panama Papers, and this global architecture to avoid paying what they owe.

  • 9 out of 10 of the world’s top 200 companies have a presence in at least one tax haven while corporate investment in tax havens quadrupled between 2001 and 2014.
  • Many wealthy individuals from across the globe, including famous celebrities and prominent politicians, are using shell companies based in tax havens to avoid or evade paying taxes on their fortunes.
  • The Panama Papers have also revealed on a far greater scale how the global banking system is involved, with more than 500 different banks actively helping their rich and powerful clients.
  • One recent estimate is that $7.6 trillion of individual wealth – more than the combined gross domestic product (GDP) of the UK and Germany – is currently held offshore.

Tondo slum in Manila, Philippines, 2014.
Tondo slum in Manila, Philippines, 2014. Tax havens cost poor countries at least $170 billion in lost tax revenues each year.

Who pays the price?

When rich individuals or multinational corporations stash their wealth in tax havens, they can dodge paying their taxes in the countries where they do business and where they make their money. This in turn robs governments of vital funds which could be spent on life-saving public services and infrastructure like schools, hospitals and roads.

Governments either have to cut back on these services, or make up the shortfall by collecting higher taxes from everyone else. Both options see the poorest people lose out and the inequality gap grow. This global system of tax avoidance is sucking the life out of welfare states in the rich world. But impact is even more devastating on poorer countries.

  • Tax havens cost poor countries at least $170 billion in lost tax revenues each year
  • Almost a third of rich African’s wealth – a total of $500 billion – is held offshore in tax havens.
  • It’s estimated that this costs African countries $14 billion a year in lost tax revenues, enough money to pay for healthcare to save the lives of 4 million children and to employ enough teachers to get every African child into school.

What needs to be done

While some of the tax dodging practices are illegal, many wealthy individuals and companies exploit weaknesses in today’s outdated and disjointed tax system to avoid paying their fair share of taxes – without breaking any laws

Governments must work together to fundamentally reform the international tax system and end the era of tax havens. They must put a stop to the secrecy that enables rich individuals and international companies to avoid paying their fair share of taxes.

What you can do

When it comes to paying tax there is one rule for the super-rich and big companies and another for ordinary people.  And while the most powerful get away with paying little or nothing, ordinary citizens are left to foot the bill for government spending. 

This is contributing to an inequality crisis where 62 people can own the same as half the world, while millions remain trapped in extreme poverty. Such extreme economic inequality is standing in the way of ending global poverty. And it’s being fuelled by unfair tax practices and the use of tax havens.

This simply has to stop. 

If we are going to end extreme inequality and poverty, we must call on world leaders to end the era of tax havens and create a fair global tax system.

Add your voice now and sign our petition