INTERVIEW: Exploring the Need for Reform in the Global Tax Architecture

“The race to the bottom by countries — the impact of globalisation and digitalisation on sovereign tax revenue — together these factors do account on an annual basis for about $600 billion worth of lost revenue to countries,” Iyabo Masha, the director of the Intergovernmental Group of Twenty-Four on International Monetary Affairs (G-24), told world leaders in her opening remarks, in New York at a 78th UN General Assembly gathering.

Ms Masha noted that there is a global consensus to address the issue and indicated that the Organisation for Economic Co-operation and Development (OECD)-G-20 Inclusive Framework is a step in the right direction, “but the scope does not provide enough revenue for developing countries. The G-24 is delighted that the UN has decided to get involved in the setting of global tax norms which will now put tax discussion at the centre of an inter-governmental process in which member countries have equal say on the outcome,” she said.

The High-Level Dialogue on Financing for Development took place at the UN Trusteeship Council Chamber following the General Assembly of Heads of Government. The event was declared open by Secretary-General António Guterres and brought together heads of government, leaders from international financial institutions, representatives of civil society organisations, and academics. Ms Masha had the role of moderating one of the segments of the Dialogue, titled “Promoting Effective International Tax Cooperation and Mobilizing Domestic Resources.” Noteworthy speakers, in the segment moderated by Ms Masha, were Jonas Støre, prime minister of Norway and Thabo Mbeki, chair, High Level Panel on Illicit Financial Flows from Africa, and former President of South Africa, and former President of Tanzania, Jakaya Kikwete.

Ms Masha spoke to Pearl Matibe, White House Correspondent for PREMIUM TIMES.

Here’s an excerpt of the interview, edited for length and clarity:

Ms Matibe: Do you see any challenge in the implementation of Agenda 2030? We know that at the end of World War II, there were nation-states, who put together rules of how the world system works when other nation-states had not become nation-states. Do these types of issues become challenges in what needs to be done with this financing?

Ms Masha: Very, very important point you have raised and in this session that just ended, no less than four speakers raised a similar issue. With respect to tax cooperation, more specifically, it’s generally acknowledged that the current corporate tax architecture is not fit for purpose because it came about more than 100 years ago, and most of the agreements made at that time remain part of the international tax architecture. Secondly, with globalisation, and digitalisation, some of the existing tax laws are irrelevant since corporations can easily shift profits from one jurisdiction to the other. So yes, it is an antiquated system and it is a system that must be reformed.

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Ms Matibe: And from your conversation that you had in this — well, more than an hour session in the Trusteeship Council chamber — what takeaway did you have from President Tinubu of Nigeria in his address?

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Ms Masha: The organisers indicated that the President of Nigeria was not able to make it, but the Minister of Finance, Mr Wale Edun, did make an intervention from the floor. And the key takeaway from that intervention is that the country is implementing reforms to improve domestic resource mobilisation so that it can have the financial wherewithal to meet its obligations and to be able to implement its programmes.

Ms Matibe: And what role does Norway play in this conversation? Why was it important to have the set of speakers that you had this morning? What is it about their role that can lend itself to this conversation to move the needle forward?

Ms Masha: Yes, Norway is a North European country. First of all, the panel must be balanced and one of the considerations is to hear voices from different geographical regions. But if I can add, more specifically, Norway has the largest sovereign wealth fund in the world, even though its population is just over five million. But even with sovereign wealth, it has a very strong and robust taxation system, and it is also a country that delivers a remarkably high level of services, health, education, and social services to its population. So, the voice of that kind of nation becomes important when you are talking about this kind of issue.

Ms Matibe: That’s interesting that you mentioned that because Norway is a small country, territory-wise, in comparison to many countries in the world, that it has been successful at having a significant amount of sovereign wealth is interesting. How about South Africa, the role of former President of South Africa Thabo Mbeki?

Ms Masha: So, former President Thabo Mbeki is the head of the African Union’s expert panel on illicit financial flows, whose reports estimate that African countries lose more than $50 billion every year from illicit financial flows. And that could be anything from multinationals hiding funds, to corporations using transfer prices to take money out of countries. So that’s a very profound point. And what President Thabo Mbeki is advocating for is that international tax cooperation must be done within the UN system. So that is the crucial role that he is playing.

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Ms Matibe: There are some critics, right? Not everybody agrees, and oftentimes, not even nation-states, who have good diplomatic relations with each other; they don’t always agree. Right? Friends don’t always agree. What do you say to those critics who might point a finger back at some countries in Africa, where there are illicit financial flows — \not from external foreign entities, but from African actors?

Ms Masha: Yes, and that point did come out in my own presentation. My own position is that yes, we do have these challenges from the external tax environment, like multinationals’ illicit flows, digitalisation, and globalisation, but low revenue is not only due to gaps in the International Tax architecture. It could also be due to domestic factors. Tax revenue is often high when the domestic revenue mobilisation framework is relatively strong.

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Ms Matibe: Dr Masha, your session lasted two hours, what would you say were the top three recommendations found to be workable?

Ms Masha: The discussion will continue beyond the UNGA, but certain threads run through the interventions from countries. First is the consensus that the United Nations Framework for Tax Reform is a step in the right direction. Secondly is a concern that because of the existence of initiatives like the OECD Framework, care should be taken not to duplicate efforts. Finally, some member states cannot meet their Agenda 2030 goals anymore, and there must be additional financial support from the multilateral system, and from developed countries. So, I will say that those are the three main takeaways. No less than 15 countries made statements on that floor in addition to the panel speakers that we’ve had, so that’s a pretty high number.

Ms Matibe: Thank you so much for coming to talk to PREMIUM TIMES immediately after your just-ended session. To close, how far away are we in a timeline to implementation and a result coming to be?

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Ms Masha: It’s going to be a long process to reach an agreement on a new tax convention because the United Nations process does take a long time. So, before the end of this year, based on all the debates that have gone on during the United Nations General Assembly, there should be a report on the way forward.

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Ms Matibe: Dr. Masha, do you have any closing remarks?

Ms Masha: My closing remarks are that an effective and efficient tax system is
fundamental to societal progress. I would also like to say that as much as mobilising strong and robust revenue is important, the rights of governments to tax should go hand in hand with their obligation to provide services, not just basic services but services at a very high level. And I am talking of education, access to energy, infrastructure, all of these things should reflect the tax money that people are giving up. So I very strongly encourage member countries to always have that in mind in the revenue mobilisation framework.

Ms Matibe: Thank you so much, Dr Masha, I really appreciate you, quite literally, after your meeting ended, spending some time with us at PREMIUM TIMES. It was wonderful talking to you.

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