Until the financial crisis of 2008, tax havens were seen as exotic places, Caribbean islands or Alpine financial fortresses patronized by celebrities, gangsters and wealthy aristocrats.
Since then six issues have become clear, which make us reflect:
a) the phenomenon is much bigger and more central to the global economy than anyone could imagine;
b) the laundering of money from global drug trafficking is favoured – a business equal to the value of global oil trade, which rescued many of the big global banks from bankruptcy in the 2008 financial crisis;
c) the funding of terrorism is developed – a “low cost” war with a very high strategic effect;
d) it distorts the international financial mechanism by changing the data and costs of operations, thus making them unpredictable;
e) the amount of money available in tax havens makes mass corruption possible, which is now endemic in both developing and developed countries;
f) the biggest tax havens are not where we thought they were.
According to recent estimates, tax havens collectively cost governments 500-600 billion U.S. dollars a year in tax revenue lost, through legal and other means. Low-income economies account for about 200 billion U.S. dollars of that lost revenue: a higher GDP share than advanced economies and more than the 150 billion U.S. dollars they receive each year in foreign development aid. American Fortune companies alone held approximately 2.6 trillion U.S. dollars offshore in 2017, although a small portion was repatriated following the U.S. tax reforms in 2018.
Companies are not the only beneficiaries. Individuals have hidden 8.7 trillion EU dollars in tax havens, according to 2017 estimates by Gabriel Zucman, an economist of Berkeley’s University of California. The more accurate and complete 2016 estimates by the economist, James S. Henry, point to a surprising total of up to 36 trillion US dollars.
Moreover, since the main users of tax havens are large financial institutions and other multinationals, the system damages small and medium-sized enterprises, by increasing monopolisation.
Powerful governments, too, have an interest: most of the main tax havens are located in countries with advanced economies or in their territories. The Tax Justice Network’s Corporate Tax Haven Index ranks – among the top three – British Virgin Islands, Bermuda and the Cayman Islands, all UK overseas territories. The Financial Secrecy Index identifies Switzerland, the United States and the Cayman Islands as the top three jurisdictions for private wealth.
With a view to better understanding why rich jurisdictions are at the top of the list, let us try to think about how many very wealthy Africans hide secret assets in Geneva or London, as well as how many rich Swiss or British people would instead bring assets to some African capital cities. Offshore capital tends to flow from poor to rich countries, thus causing more damage than the populations that international mafia groups make converge in Europe.
The offshore system is also growing: it has contributed to a drastic fall in average corporate tax rates by half, down from 49% in 1985 to 24% in 2019. For U.S. multinationals, corporate profits moving to tax havens increased from around 5% to 10% of gross profits in the 1990s to around 25-30% in 2019.
The principles of the international system of corporate taxation were established by the League of Nations (1920-1946) almost a century ago. Therefore, until about ten years ago, there were few political curbs on the expansion of tax havens. After the aforementioned 2008 crisis, however, governments have been under pressure: 1) to bridge large budget deficits; 2) to appease voters who were furious about bank bailouts funded by taxpayers’ money and 3) about the increase in inequalities and in the ability of multinationals and the rich people to evade taxes.
The Panama Papers and the Luxembourg Leaks have shown the use of tax havens for often harmful purposes and have increased pressure to do something about it. The OECD has launched two major projects.
One is the Common Reporting Standard(CRS), a regime for the automatic exchange of financial information across borders to help tax authorities to track the taxpayers’ offshore assets.
The CRS, however, has many loopholes. For example, it enables people with the right passport to apply for residence in a tax haven rather than in the country where they live.
Nevertheless, the CRS has brought some results. In July 2019 the OECD estimated that 90 countries had shared information on 47 million accounts worth 4.9 trillion euros; bank deposits in tax havens had been reduced by 20-25% and voluntary disclosure prior to implementation had generated 95 billion euros in additional tax revenue for the OECD and G20 Member States, which include the major emerging market economies.
The other initiative is the Base Erosion and Profit Shifting (BEPS) project, targeted to multinationals. It is the OECD effort to “realign taxation with economic substance” without breaking the long-standing international consensus in support of the free competition principle. Although BEPS has improved transparency for multinationals, it has ultimately been seen as a failure by the OECD, especially for the digitalised economy.
In January 2019 the dam started to crack. The OECD recognised the need for “solutions going beyond the free competition principle”. In March 2019, Christine Lagarde, the then IMF Managing Director, defined the control method as “obsolete” and “particularly harmful to low-income countries”.
She called for a “fundamental rethinking”, shifting to approaches based on income allocation formulas. In May 2019, the OECD published a road map proposing reforms based on two pillars: (i) determining where taxes should be paid and on what basis, and what part of profits should be taxed on that basis; (ii) convincing multinationals to pay a minimum level of taxes.
Professor Reuven Avi-Yonah, of the University of Michigan’s Law Faculty, said that the plan was “extraordinarily radical” and would be “almost inconceivable” even five years ago.
But a radical change is feasible. The Tax Justice Network now sees that its four key demands – initially dismissed as utopian – are gaining global support: automatic exchange of financial information across borders; public records of the actual ownership of financial assets; country-by-country reporting, and a single tax with a distribution formula.
Corporate taxation, however, is only the beginning: we should consider the forces that make the offshore system work. Switzerland is a case in point. Politicians in Germany, in the United States and in other countries have clashed with Switzerland over banking secrecy, with little success. In 2008, after discovering that Swiss bankers had helped U.S. clients to evade taxes, the Department of Justice adopted a different strategy: it targeted not the country, but its bankers and banks.
For the first time Switzerland has made important concessions on banking secrecy. It is understood that any effective international response must include strong sanctions against those who facilitate private business, including accountants and lawyers, especially when they favour criminal activities such as tax evasion.
Financial flows in search of secrecy or fleeing corporate taxation increase inequalities and vulnerability to crises and cause unquantifiable political damage. Meanwhile this capital shrouded by banking secrecy infiltrates Western political systems and destabilises them as poverty and unemployment increase. While financial capital flows from the poorest countries to the tax havens of the rich world, it follows the aforementioned migration of job seekers, not needed by the already saturated markets of destination.
The financial network of tax laundering operations favours the choice of unfair operations without any moral evaluation of the means to be used to enhance capital.
There will be those who cry out for freedom of trade, but suffice to point out to them the list of money laundering companies operating in tax havens.
The greater the scale of financial transactions, the less their freedom and autonomy must be. This will be the next big international issue to be solved with less talk and more deeds.
An Uneven Recovery: the Impact of COVID-19 on Latin America and the Caribbean
Employment rates in some Latin American and Caribbean countries have experienced a relative recovery, although in most, rates fall short of pre-pandemic levels. The quality of available jobs has also declined, as has the number of hours of paid work per week, according to data from a new survey by the World Bank and the United Nations Development Program (UNDP).
The High-frequency Phone Surveys, the second phase of which was implemented this year in 24 countries of the region, provides a snapshot of families’ well-being and their perceptions regarding the crisis. The goal is to take the pulse of the region and measure the impacts of the pandemic in key areas such as the labor market, income and food security, gender equality, and household access to basic services, such as education, health (including the COVID-19 vaccine), Internet connectivity and digital finance. The survey took a representative sample of the population aged 18 and over with access to a telephone in each country.
“The COVID-19 pandemic underscored the pre-existing inequalities in the region, where the most vulnerable and poorest groups have been disproportionately affected,” said Luis Felipe López-Calva, UNDP Regional Director for Latin America and the Caribbean. “This survey allows us to take the pulse of the region and propose evidence-based solutions.”
“The pandemic severely impacted millions of families in the region,” said Carlos Felipe Jaramillo, World Bank Vice-president for Latin America and the Caribbean. “These surveys we present today are crucial for obtaining current data on the scope of the crisis and for recommending informed measures to help improve the quality of life in our countries.”
Survey results demonstrate that the crisis particularly affected women, both because of the stronger initial impact on them and their slower labor market recovery. Mothers of young children (aged 0 to 5 years) have been most affected. In fact, a year and a half after the onset of the crisis, women are twice as likely as men to be unemployed owing to the pandemic. This situation is exacerbated by an increase in women’s household responsibilities, including supervision of children in remote education, and a higher incidence of mental health problems.
For the region as a whole, the employment rate stood at around 62 percent, almost 11 percentage points below the pre-pandemic level. Employment rates surpassed pre-crisis levels only in Guatemala, Nicaragua and El Salvador.
Moreover, formal employment fell 5.3 percent in the region while self-employment grew 5.7 percent, and the proportion of workers employed in small businesses (maximum of four workers) increased by 8 percent. These figures point to a deterioration in the quality of available employment. Even among the employed population, regional survey results identified a decrease in weekly hours of paid work, from 43 to 37, confirming this negative trend.
The survey data found that 28 percent of people employed before the pandemic lost their jobs, and more than half (17 percent) of those with a job before the pandemic have left the labor force. These impacts disproportionately affected women with young children: 40 percent of female workers over 18 with children aged 0 to 5 years lost their pre-pandemic job, compared to 39 percent of women in general and 18 percent of men.
The pandemic had a greater impact on less educated workers (both men and women). Thirty-five percent of those with a primary education or less lost their job during the pandemic, as did 28 percent of employees with a secondary education. Approximately 19 percent of individuals with a tertiary education became unemployed.
Survey data revealed that as a consequence of labor market setbacks, just over half of the households in the region have not yet managed to recover their pre-pandemic income levels. This situation occurred despite government efforts to help families through direct transfer programs and other benefits. Approximately 38 percent of survey respondents had received emergency cash transfers.
The survey demonstrated that food insecurity still affects 23.9 percent of households in Latin America and the Caribbean. This figure is almost double that reported by households prior to the pandemic — 12.8 percent. However, most countries have improved in this area with respect to the levels observed in June 2020.
Results also demonstrated that more than a year after the onset of the crisis, 86 percent of school-age children and youth receive some type of education (face-to-face or remote). However, figures vary widely across countries: in Guyana and Guatemala, it is 64 percent while in Peru and Chile, it reaches 95 and 97 percent, respectively. Additionally, education coverage falls below pre-pandemic levels in the countries surveyed. Just under a quarter of students in the region attended face-to-face classes.
Access to health services improved significantly. However, the percentage of unvaccinated people remains high in some countries. Eight percent of the regional population has not been vaccinated or is not willing to receive a vaccine. This percentage is especially high in the Caribbean: 60 percent in Haiti, 49 percent in Jamaica and 43 percent in Saint Lucia and Dominica.
Finally, according to the survey results, the use of mobile banking and online transactions (e-commerce) rose sharply during the pandemic. The use of digital payments also increased — currently, 26 percent of survey respondents said they used mobile wallets. The highest increases were among the rural population, the population over age 55 and those with low levels of education (primary or less).
Gender-based violence in Bangladesh: Economic Implications
Violence against women is one of the most heinous crimes perpetrated in today’s world. However, despite the gravity of the violence perpetrated against women, it is still the pervading reality in the world. Bangladesh is also afflicted with this malaise of violence against women which is manifested in the deluge of news across the media about the violence against women in various form .While Bangladesh has made commendable strides in the economic front, the perennial subjugation of the women who account for virtually half of its population remains a hurdle. Against this backdrop, this article investigates the economic toll incurred to the economy owing to the entrenched culture of systemic violence in our country.
Women constitute nearly half of the population of Bangladesh. As such, their innate potentials have considerable bearing on the socio-economic progress of the country. Admittedly, advancement of a country in socio-cultural indicators presupposes the simultaneous improvement of women from the subjugated position culturally attributed to them. It is impossible to envisage a prosperous thriving economy without the contribution and participation of the women equally. Therefore, the lack of women’s participation commensurate with their capabilities hinders the development of the country.
One of the obstacles women confront in their journey of transforming into human capital is perhaps the retrograde views that society harbor about the traditional gender role of the women which fetter their contribution to the economy and society by bestowing them only the circumscribed role of looking after the domestic affairs and rearing and educating child. The pastoral as well as urban culture perpetuate these traditional gender roles and deny women a free rein over their fate. Whenever women disavow the preordained and predictable roles provided by the society, they have to face mounting pressure from society so as to conform to the prevailing norms .Failing to conform to the regressive gender role will spell grave consequences for the women .When the society fails to cower the woman with the threats that are at its disposal ,it resort to the egregious path of violence. While violence against women is one of the most reprehensible crime one can ever commit, it however is normalized through a power dynamics that reinforces the overbearing male role and relegate women to the subjugation. Therefore, the culture of violence against women isn’t anomalous rather is embedded in the prevailing patriarchal power dynamics which deem chastising women for their rebellious attitude is solicited and invoke often contrived and distorted religious edicts in order to legitimize their deplorable crime. Moreover, the culture of violence against women which has been aptly termed as a epidemic by the United Nations is rooted in the prevailing socio-economic structure of the country that systematically condone the browbeating of women into submission to patriarchal norms and wield violent measures when the woman stubbornly gainsay their patriarchal hegemony.
While the social, cultural and health toll of the violence perpetrated against women is undoubtedly strenuous, the economic losses incurred by the violence and the opportunities nipped in the bud owing to violence against women also need to be taken into account in order to the adequately discern the deleterious ramifications of the violence against women .However, despite profound economic toll that are inflicted due to the violence against women, it is still unaddressed in the economic literature worldwide and discussion and cognizance about this momentous issue and its economic implications still scant.
As has been mentioned earlier, women constitute the lynchpin of the economy of Bangladesh which has been adequately manifested in the participation of women in Bangladesh’s much-heralded RMG sector and other productive sectors. However, this success of the economy overshadows the plight and perils this working class women confront in their bid to become economically productive. The violence against women is systemically entrenched in the country and women’s engagement in the economic activities are frowned upon by the society and culture .Therefore ,the this patriarchal fetter women behind the door of their houses and worst women are inflicted physical and mental violence in event of questioning the dictates of the elders and the male custodians. Therefore , the fundamental impact of violence against women on the economy of the country related to the untapped opportunities due to the constrains imposed by the patriarchal society on women under the pretext of social, religious and cultural norm. This threat alone or normalization of the gender role of the women as a care-giver hinder women in taking part in the economy on a par with their male counterparts .
Beside the lost opportunities that can be tapped, the violence against women has numerous other implications on the economy. Firstly, the violence against women inevitably results in the physical damage and mental trauma of the victim which has enduring toll on her. Therefore ,violence against women translate to toll on the health of the victim and therefore the cost incurred on the victim due to medical fees as a result of the violence is also included in the economic cost of violence against women. Secondly, the violence against women also leads to diminished productivity of the victim due to the health hazards. Therefore, violence against women has implicit economic cost on the economy as a result of the lost productivity.
Thirdly,the cycle of the violence against women negatively sensitize women in not challenging the sacrosanct patriarchal norms and therefore women fit themselves with the prevailing adverse society and they themselves reproduce and reinforce these norms .Therefore, a vicious cycle set in which prevents women to actualize their potential and stymie them in their path of realizing their goal .This result a sense of apathy in women with regards to education and other means of social mobility and they deliberately avoid the economically productive activities that are deemed taboo by the prevailing social norms and cultural ethos.
Moreover, violence against women is an egregious form of crime perpetrated by a patriarchal agent while the society has entrenched roles, norms and ethos that condone and encourage such outrageous violence .Moreover, a vicious cycle is at play in the gender based violence. The economic repercussions of the violence committed against women is considerable. Violence against women hinder the development of the women commensurate with their inherent potential which nip the dreams of women in the bud. Besides, gender based violence also deter women in challenging the prevailing patriarchal norms and undertaking productive economic activities that are frowned by the patriarchal society and are deemed taboo. Moreover, a widespread sensitization in societal level as well as a drastic overhaul of the patriarchal structure is necessary in order to avert the adverse socio-economic consequences of gender-based violence and extirpate the heinous root of this deplorable crime.
Omicron Variant: Implications on Global Economy
The prolonged battering of the Covid-19 has been considerably hitting the world economy. While vaccination and a receding in the cases of the cases in virus transmission has provided brief respite to the countries that are grappling with the recurring surge of the virus, the resurfacing of another virulent mutation termed as Omicron sounds ominous for the future of the world economy .Against this backdrop, this article projects the plausible economic ramifications of the new strand of the virus on the global economy.
The economic downward trajectory occasioned by the Covid-19 has been unprecedented in recent global history. While the economic depression of 2007-08 proved disastrous for the world economy, the toll emanating from Covid-19 pandemic and consequent economic stagnation has surpassed all the previous economic plunge .In fact, some analysts have gone to the extent of comparing the Covid-19 induced economic depression with the great depression of the 1920s.However, whether the far reaching repercussions of the Covid-19 on the global economy will be as momentous is still remains to be seen. Nevertheless, the profound economic jolt triggered by the Covid-19 pandemic is poised to reverberate across the world through shaping socio-economic and political events
The scar inflicted by a protracted economic recession owing to Covid-19 is apparent in the arduous path of economic rejuvenation in the western countries and eastern countries alike. Virtually every country is grappling with the toll that Covid-19 has incurred in the economy. The western countries are finding it difficult to retrieve the losses that Covid-19 has precipitated. Although the swift vaccination of the western countries at the expense of the developing countries has provided a fleeting lull in their battle against Covid-19,it seem however the virus has resurfaced with increasing virulence in order to offset whatever gain these embattled countries managed to garner in their fight against Covid-19.
The skyrocketing and unprecedented inflation of the western countries coupled with a plummeted consumer confidence has meant a prolonged period of stagnation of their economies. However, in the wake of vaccination induced temporary respite in the viral cases, the economies rebounded strongly from the pits of economic recession. However, these hard-earned gains will be reversed in the event of the advent of any new strand of the virus. Already, the delta variant which originated in India had triggered a spate of Covid-19 flare-ups in the United States and United Kingdom. Against this backdrop, the Omicron variant is set to aggravate the economic woes of the western countries and in turn the world.
While the western countries are reeling from economic stagnation, the developing and underdeveloped countries are confronting many abysmal realities due to their prevailing economic backwardness. Their economic plight has been lingering in want of adequate vaccination due to the apathetic stance of the western countries and global governance institutions .Therefore, while the western countries has rebounded from the Covid-19 induces economic predicaments, the difficulties confronted by the developing countries has continued unabated. While the influence of advanced countries and their less advanced counterparts in world-economy is inextricably tied, the callous attitude of the developed countries to the vaccination of countries in Asia and South Asia turn out to be sheer lack of economic prudence.
While western countries are considered as the economic hub of the world, it is however the developing countries on which the vital supply chains of the world economy hinges on. Therefore, the tardy pace of vaccination in these countries is prejudicial to the global economic stability. The economic ramification of the slow pace of vaccination is twofold for the world economy. Firstly, the slow vaccination hinders the revival of the economic activities in the developing countries thereby obstructing the supply chain of the commodities .This supply chain crisis has ripple effect in the western economies. The recent predicament of inflation and attending macroeconomic woes in countries like the United States and United Kingdom is manifestation of the supply chain crisis plaguing the world economy. Due to the paucity of commodities and raw materials, the prices of necessary goods has escalated in the western countries which has plummeted consumer confidence and triggered a vicious cycle of stagflation in the economy that is reminiscent of the 1970s when a similar crisis in oil supply has precipitated economic downturn in the western economies.
Secondly, the slow rate of vaccination also run the risk of allowing the virus to mutating to newer and much virulent variants and due to the unfettered communication as a result of globalization the emergence of any new variant doesn’t remain in the confines of any border rather proliferate like wildfire and precipitate global crisis. Therefore, the lack of vaccination or slack pace therefore has global repercussions. Therefore, it is judicious of the developed countries to concentrate efforts in contributing to the vaccination of the less developed countries which will yield good results for their economy.
The ubiquitous mechanism in battling Covid-19 remains one of containment that entails halting economic and other activities and insulating the countries from other countries through imposing border controls, curbs on air communication and other stringent measures echoing protectionist attitude. However, these measures are antithetical to the spirit of the globalization and global trade. While lockdowns and other protectionist measures yield temporary improvement in the Covid cases, it is not viable in the longer term. Besides, lockdowns have deleterious ramifications on the economy and further aggravate economic rebounding of the developed countries and developing countries alike. Therefore, efforts should be aimed at preventing the Covid cases rather than grappling with the Covid with a knee-jerk policy of improvisation. .
Moreover,Covid-19 has already occasioned far-reaching economic fallout in the world economy. Indications abound regarding the fact that the world economy is verging on profound and prolonged recession. Against the backdrop of ominous predictions and slackening growth and painful inflation of the world economy, the prospects of the world economy due the advent of a new variant remain mired in obscurity. It can be concluded that the economic repercussions of yet another novel variant will be momentous and will offset hard-earned growth of the countries .Unlike previous precedent of haphazard policy and knee-jerk policy solutions, this time around the countries need to undertake challenge much prudently and should concentrate all of their efforts aiming at universal vaccination of all countries so as to prevent the resurfacing of similar virulent viral strands.
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