Why is the Responsible Tax Project important in the wake of COVID-19?
The importance of the Responsible Tax Project has been clearly illuminated by the COVID-19 pandemic. With countries around the world facing weakened or negative growth, rising unemployment and spiraling fiscal deficits, tax policy is in sharp focus. The most immediate question is how governments can generate the income needed to address urgent public concerns. But more fundamentally, the trends of globalization and digitalization over recent decades have brought into question the sustainability of the current international tax system.
During the recent KPMG roundtable series, there appeared to be consensus that significant tax policy reform was not appropriate in the midst of a pandemic and economic crisis. Nonetheless, since crisis allows for new thinking and impulses, it may well be the right time to consider changes of a less incremental nature that will be needed in the near future. And in the spirit of stakeholder capitalism, it is right that debate is informed by a diversity of views.
Global health crisis post-COVID
The global health crisis arguably provides a unique opportunity to reset business attitudes towards tax. COVID-19 has thrown into sharp relief the role that tax plays in supporting business. Whether through fiscal stimulus, bailout packages or employment support schemes, many businesses have come to rely heavily on public funds - some for their very survival. Meanwhile state-funded healthcare has supported employees through the crisis, and is now delivering a vaccination program that hopefully signals a return to some level of normality. After twelve months of turmoil, many companies are coming to view tax as not only a cost but an investment -- a contribution that reflects the reciprocal relationship of business and society.
Cementing this shift in attitude is likely contingent on tax reform: while more businesses are coming to see tax as an investment, we also hear common concerns around the status quo - whether it is unnecessary complexity, policy instability, the lack of a level playing field, or a tax system that sends the wrong incentives.
Some reform processes are already in train, and an early opportunity for progress lies with the OECD’s efforts to reform the international corporate tax system. The change of administration in Washington D.C. hopefully signals a reinvigoration of this key avenue for multilateral cooperation on tax. But the reality is that the OECD’s proposals - while undoubtedly welcome - leave untouched many fundamentals of the corporate tax system. There is an opening for more radical thinking.
Take the other global crisis upon us, that of climate change. Business rhetoric reflects a growing concern for climate, but too often words are not matched by action. At the same time, the right incentives are not yet in place to reward positive steps by business. Put simply, those who contribute to lowering emissions should benefit from reduced tax, and vice-versa - those who pollute above certain levels should pay a tax premium. This seems to reflect the needs of the global commons.
The Responsible Tax Project identified that green taxes might play a role in raising additional revenue in the short to medium term. But longer term, the question of how we should tax business must transcend the binary, polarized debate about the overall tax burden that businesses should assume: we need to invest in radical thinking about how businesses can make a fair financial contribution that also supports wider efforts - to tackle climate change, address inequality, and so on.
The B Team encourages companies to make a public commitment to responsible tax behavior. Many have already done so, in recognition that tax lies at the very heart of the social contract between business and society, and is therefore a fundamental component of their approach to environmental, social and governance (ESG) performance. Tax does not exist in isolation from wider ESG concerns - it is systemic, inextricably linked to environmental and social issues. As we look to the future of tax in the wake of COVID-19, there is a rare opportunity to fundamentally re-shape business taxation, with a view to supporting truly sustainable business paying their fair share in more equitable societies.
Ewan Livingston is a Cause Strategist at The B Team, leading the organisation’s work on responsible tax within its Governance & Transparency initiative. Previously he was Head of Corporate Partnerships at ActionAid - a human rights NGO - and has held a number of advocacy and partnership roles across the private, public and third sectors. He started his career in...