Some time back, while seeking advice from an acquaintance on some tax matters, I was put through some positive ‘untold facts’ of paying taxes. My acquaintance analogued paying of taxes to donations paid as a charitable contribution to the works being done by organizations for the welfare of the people and the society at large.
So he was trying to explain that when the government as an institution is dedicated to doing good works and promoting public interest, we should not oppose taxes which are basically funding the government activities for public welfare. By standard of this argument, taxes are good and we should feel elated for all the good our tax payments are doing. Contributing toward the public good through payment of taxes cannot be seen as a bad thing. This yardstick makes sense to call the taxes good.
When we look at the technical aspects of taxes, we find taxes as our own dues that we pay to live in a democratic civilized society. Huge infrastructure in all sectors of the economy like the network of roads, buildings, power etc. available to all of us is in place because of the taxes paid by our previous clan of taxpayers. We as the current tax payers using all this incredible infrastructure pay the dues to maintain as well as expand it.
We have a breed of people in the upper class of society who are not paying the taxes fairly. Middle and lower income class pay too much while the wealthy pay too little. At the moment a few questions remain unanswered. How fair are taxes levied? Is the quantum of tax fairly shouldered by various economic segments? Even the ways and means of tax collection bear a question mark on the fairness front. All of these have validated the controversies surrounding taxes in our society.
However, apprehensions have always loomed large over the rich and powerful who are accustomed to manipulating the tax system for their own advantage. The rich and powerful have been effectively dodging its equitable operations.
In fact, the story of tax evasion has gone global today where rich and powerful global leaders have been trapped in a net of investigations. Let me explain. In a situation when the devastating impact of Covid-19 pandemic on health and economy has been dominating the focus of governments to repair the damage and reset the governance system in line with the virus-induced changes, International Consortium of Investigative Journalists (ICIJ) opened a ‘Pandora Box’ of offshore financial frauds. The ICIJ published a report on its website on October 3, 2021 exposing “offshore havens and hidden riches of world leaders and billionaires”. While exposing the unprecedented leak under the banner of ‘Pandora Papers’, the report takes the lid off the ‘inner workings of a shadow economy that benefits the wealthy and well-connected at the expense of everyone else.’
Notably, ICIJ is a U.S.-based nonprofit organization with a global network of reporters and media organizations who work together to investigate the most important stories in the world. Drawing on the expertise and reach of its network, the organization claims that it collaborates on groundbreaking investigations that expose the truth and hold the powerful accountable, while also adhering to the highest standards of fairness and accuracy.
With such a powerful mission of holding the powerful accountable, the ‘Pandora Papers’ leak is not less than a tsunami for countries whose leaders and celebrities have figured in the list of those driving shadow economy fraudulently. Millions of leaked documents and the biggest journalism partnership in history have uncovered financial secrets of 35 current and former world leaders, more than 330 politicians and public officials in 91 countries and territories, and a global lineup of fugitives, con artists and murderers, reads the ICIJ report.
Since the ‘Pandora Papers’ leak is just a few days old and yet to be fully scanned, the initial revelations appear larger and more global than even ICIJ’s 2016-landmark Panama Papers investigation, which spawned police raids and new laws in many countries. The Panama Papers leak also saw the fall of two prime ministers. However, the first thing which strikes the most is how richest and most powerful people must have been using secretive tax havens and corporate structures to keep their wealth out of gaze and avoid paying taxes.
Notably, as explained by the Washington Post, which was part of the ‘Pandora Papers’ investigation, the offshore system siphons money from government treasuries, worsens wealth disparities and protects those accused of wrongdoing while depriving their victims of recourse.
The initial reports reveal that the off-shore financial abuse valuing ‘at least $11.3 trillion’, according to a 2020 study by the Paris-based Organization for Economic Cooperation and Development, is mostly tied to tax evasion. Even legitimate sources of money invested in off-shore companies by the powerful have been questioned. Even as the media has started doing a post-mortem of the ‘Pandora Papers’ leak nailing the accused ‘who is who’, it’s immature at the moment to take the ICIJ investigative report at its face value. Some named in the investigation have already started contesting the allegations of tax evasion. Notably, the report talks about both tax evasion and tax avoidance by the people in question. Whether they had fully notified the authorities in their home countries about the offshore investment in building their assets or not, remains unconfirmed at the moment.
It’s ironical that despite tools like “Know Your Customer (KYC) in place to ensure that taxpayers are not hiding wealth to evade taxation, the ‘Pandora papers’ is a slap on the system as the rich and powerful have been able to keep themselves outside the ambit of KYC norms. Otherwise KYC requires people conducting financial transactions in a particular area to fully identify themselves. This way, authorities come to know who has money and where it’s being utilized. This tracking of a financial transaction helps the tax authorities to keep a tab on tax evaders as well as tax avoiders.
‘Pandora Papers’ leak has started dominating the media headlines, Among many media reports commenting on the involvement of the rich and powerful in tax evasion, I found a statement of a specialist in offshore tax havens at City, University of London, Professor Ronen Palan, worth reproducing. In an article syndicated by PTI from the Conversion, the professor has been quoted as: “I’m afraid I’m not surprised by these papers. There’s no evidence to suggest that the volume of transactions taking place through these offshore centres is declining, so the same financial structures that we heard about in the Panama (2016) and Paradise papers (2017) are still clearly being used. It’s fascinating that so many of these people in the public eye must have known that eventually their activities would become common knowledge, and yet they opted for offshore secrecy anyway. I suppose any concerns may be overcome perhaps by greed and the knowledge that they will not be prevented from doing it.”
In the Indian context, ‘Pandora Papers’ reveal big names who hold their money abroad, owe Indian banks crores – some are even in jail – and have diverted their assets into a network of offshore companies and trusts. Kiran Mazumdar Shaw’s husband; real estate businessmen who owe Indian banks Rs 88,000 crore; Jackie Shroff; Nirav Modi’s sister; Gautam Adani’s brother are named in Pandora Papers. A report by Indian Express which was a media consortium who investigated ‘Pandora Papers’ says Anil Ambani, who declared bankruptcy in a UK court, has 18 offshore companies in Jersey, British Virgin Islands (BVI) and Cyprus. Set up between 2007 and 2010, seven of these companies have borrowed and invested at least $1.3 billion.
Let me conclude with a quote of Oliver Wendell Holmes, Jr. He expressed that “I like to pay taxes. With them I buy civilization.” Isn’t the ‘Pandora Papers’ leak hinting that rich and powerful are destroying civilization by evading taxes?
(The views are of the author & not the institution he works for)