In ActionAid’s regular discussions with corporates on the subject of tax, there is a strikingly common theme in what we’re told by business leaders – namely, that whilst tax avoidance is indeed a problem, the tax affairs of their own businesses are beyond reproach.
A problem of trust
It is of course the case that some companies adopt more responsible tax policies and practices than others. Yet whilst some of us would take this as read, these differences do not always cut through in public debate. Progressive companies seeking to improve their impacts on society are lumped together with aggressive corporate tax avoiders, with the catchall category of ‘big business’ usually taking the heat.
As a result, public trust in business is very low: a reality that is largely understandable and often warranted. Across a range of issues – from human rights and labour standards to governance and tax – companies have not done enough to demonstrate to society that they have motivations beyond short-term profits, and their own commercial self-interest.
Yet some businesses are starting to recognise and address their broader responsibilities to society, and accountability to stakeholders beyond shareholders. This raises dilemmas for responsible businesses, seeking to pay a fair share of tax. How do they differentiate themselves from their less progressive peers, and demonstrate to the public that they are acting responsibly? And what can they do to positively influence the behaviours of their less responsible peers?
A move towards transparency
The starting point must be transparency. If the public narrative on corporate tax avoidance tells us one thing, it is that claiming to be acting responsibly doesn’t cut it – companies need to prove that they are paying their fair share. Publishing data on revenue, profit and taxes paid on a country-by-country basis would be positive step.
Establishing more responsible corporate tax behaviour
Engagement with organisations such as ActionAid – which has consistently advocated for responsible tax practices, especially focusing on low income countries – is also welcome. Even the most progressive businesses remain predominantly driven by commercial motivations, so engaging meaningfully with broader stakeholder groups is vital to ensuring that alternative views and voices – including those from the often neglected Global South – are heard, and acted upon. KPMG’s Global Responsible Tax Project is a welcome contribution to promoting such dialogue and debate.
For our part, NGOs also need to accept the reality that responsible companies can only go so far, before disadvantaging themselves commercially, and leaving themselves vulnerable to competitors. Such a situation is in the interest of neither the company nor ourselves: it would only serve to advantage less progressive companies over their more responsible peers. But in those cases where companies cannot act unilaterally, they aren’t entirely impotent – they can use their considerable power and influence to leverage change from policymakers. Calling publicly for a fairer global tax system – one that addresses the inherent disadvantages that the poorest countries face – is within the gift of progressive corporate leaders. NGOs like ActionAid should not only support such action, but do so publicly.
These steps and others can help to promote better dialogue and cooperation between tax campaigners, policymakers and corporates, thereby supporting efforts to establish more responsible corporate tax behaviour. But we are under no illusion: tax will remain a deeply contentious issue. Therefore I would like to finish on the fundamental issue that drove ActionAid to start advocating on responsible tax, and which continues to drive our efforts more than a decade on.
Domestic resource mobilisation
Poverty and injustice continues to blight billions around the world. The Sustainable Development Goals articulate a bold vision for a better world, but they will come at a cost. Aid and philanthropy will play a part, as will more innovative financing mechanisms and private sector investment. But a crucial piece of the puzzle is domestic resource mobilisation in lower income countries – namely, tax.
Developing governments rely on corporate taxes for twice as much of their income than do wealthier nations. Furthermore in the poorest parts of the world, alternative sources of revenue are often simply not available: taxing the poorest in society is not only morally unjustified, it also doesn’t raise much revenue. Therefore raising revenue from corporate income (and tackling tax avoidance) is critical.
The impact of revenue losses is felt by all, but particularly women and girls, especially in terms of their access to public services. Without sufficient tax revenue, women cannot access maternity and reproductive health services. Without sufficient tax revenue, women will continue to face a disproportionate burden of unpaid care work. Without sufficient tax revenue, girls are often deprived of the education opportunities that boys might receive.
Corporate tax - a global issue requiring global solutions
Corporate tax is a global issue requiring global solutions, but companies – too – have a big role to play. Transparency, combined with a willingness to engage meaningfully with organisations like ActionAid seeking a fairer tax system for all, would be a good starting point. A better, fairer and more equitable tax system is possible, but it requires corporate leaders – those genuinely seeking to do the right thing – to speak up and take action.
Girish Menon’s experience in international development now spans 30 years: as well as his term at ActionAid India he has worked for Plan International, DfID and most recently WaterAid, where he was Deputy CEO and Director of International Programmes, responsible for 22 countries in sub-Saharan Africa and south Asia.