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The global governance architecture for cooperation...
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Your Excellency Mr. Guillaume Long, Minister of Foreign Affairs of Ecuador

Your Excellency Mr. Horacio Sevilla Borja, PR of Ecuador

Your Excellency Mr. Jerry Matthews Matjila, PR of South Africa

Executive Secretary of the ECLAC Ms. Alicia Barcena

Professor Jos Antonio Ocampo

Mr. Alexander Trepelkov, Director , FFD Office

Ms. Tove Maria Ryding, European Network on Debt and Development

Excellencies,

Ladies and Gentlemen,

 

I am honored to join the Permanent Representatives of Ecuador and South Africa who have been instrumental in organizing this event. I welcome the encouraging presence of Minister of Foreign Affairs of Ecuador among us today and am privileged to be amongst so many knowledgeable experts on the subject of development finance and taxation.

 

Ladies and gentlemen

 

Raising awareness on the important issue of International Cooperation on Tax matters is a challenging task.

 

This is so because the global governance architecture for cooperation in taxation has not kept pace with the pace of globalization. International tax matters remain bastions of Westphalian sovereignty. With origins in work undertaken by the League of Nations in the 1920s international tax cooperation is largely centered in a network of more than 3800 bilateral agreements. These have in recent times been supplemented by some plurilateral efforts in fora such as OECD and the G-20.

 

As for multilateralism, while it is seen as faltering on many fronts, it has been and remains conspicuously absent in matters of international tax cooperation. Those who have championed expansive roles for multilateral organizations on numerous other issues have alas not espoused this cause.

 

Many among you who understand international tax matters much better than a novice like me may like to offer plausible explanations for this enigma. Coming from a developing country I can only give our perspective. Tax revenue is the lifeblood of the State. With integration of economies in a globalized world, actions on taxation in one country affect practically everybody, within and across borders. It has direct relevance to the illicit financial flows, especially out of developing countries as well as in creating the right international system for the movement of finance. In short, tax revenue which is the most important element of domestic resource mobilization requires robust international cooperation. As is widely recognized in a world of cross-border trade, investment and finance, there are limits to what can be done by domestic policy alone, necessitating strengthened international cooperation in tax matters. The figures of the financial flows on account of use, misuse and abuse of loopholes in national and global financial structures are staggering.

 

Yet, multilateral organizations are on the sidelines of international tax cooperation. At present, the UN Committee of Experts on International Cooperation on tax matters is the only body in the UN with a mandate to discuss tax related issues.

 

The committee, of which India is a member, reflects the diversity of the UN membership and places a particular focus on developing countries and countries with economies in transition. It has done some useful work for the development of international tax norms with special emphasis on guidance by and for developing countries.

 

Mr. President,

 

I would like to illustrate by a few examples as to how this committee even in its restricted current format has achieved some meaningful results which augur well for UN's role in furthering international cooperation in tax matters:

 

(a) The committee has successfully prepared the United Nations Model Convention on Double Taxation, which provides a model for bilateral tax treaties between countries seeking to eliminate double taxation, as well as double non-taxation. In contrast with the OECD's Model Tax Convention on Income and on Capital, the United Nations Model Convention preserves a greater share of tax revenue to the country where investment or other economic activities take place, an important distinction as countries seek to ensure revenue for development while retaining a favourable investment climate. Through its Commentary, the United Nations Model Convention seeks to explain alternative provisions helping countries to decide which approach better suits their circumstances and priorities in negotiation of bilateral tax treaties;

 

(b) The United Nations Transfer Pricing Manual, which provides practical guidance helpful especially for developing countries, on the issue of inter-company transfer of goods, services and loans;

 

(c) In its last session, in April 2017, the committee through a resolution got adopted the United Nations code of conduct on cooperation in combating international tax evasion.

 

Mr. President,

 

In addition to such useful normative works, there is need for enhanced international cooperation to address illicit cross-border financial flows, tax evasion, trade mis-invoicing, and money transfer without money movement colloquially known as 'hawala' transactions in our part of the world etc.

 

We are living in times when there is a real momentum for change around us. This is most pressing and visible in the realm of global governance. Challenges to global wellbeing are many. Food, fuel, water and a healthy environment can hardly be secured without making a comprehensive reform of global regimes. Be it trade, investment, finance, taxation or technology frameworks, they all need a more level playing field for participation of developing countries.

 

While India is actively involved in efforts by OECD and G-20 on this issue, we also favor an open, transparent and multilateral platform for global norm-setting on taxation. We feel that ongoing work under OECD and G-20 should not mean that meaningful and complementary work on taxation cannot be done in the UN. We strongly feel that everybody, every country, rich or poor, big or small does have a right to an inclusive place at the table to decide on an issue as important as international cooperation on tax matters. On such issues restrictive surrogates are no substitutes for representative fora.

 

The UN Committee of Experts on International Cooperation in Tax Matters is an important mechanism but is constrained in terms of its mandate and resources. It is not an intergovernmental body. The issue of upgrading this Committee into an intergovernmental body to give full and equal voice and representation to developing countries has been a long standing demand of developing countries. Its 25 members, while nominated by Governments, are appointed by the UN Secretary General and work in their personal capacity. In absence of the UN norm for equitable regional representation, OECD members occupy 11 of the 25 seats in the Committee. The Committee is also perennially resource-constrained.

 

While exploring ways of strengthening international tax cooperation, the lowest hanging fruit comes to mind is strengthening of the UN Tax Committee. Some of the ideas which were discussed very preliminarily, in the aftermath of Addis can be revived, for example:

 

i. Re-designating the Committee of Experts into an Intergovernmental Committee of Experts on International Cooperation in tax matters - this would retain the Committee as a body of Experts still working in their expert capacity, thus addressing concerns about technical efficiency and politicization;

 

ii. Increasing the membership of the Committee from 25 to say 35 with increased representation of developing countries - this is not controversial;

 

iii. Provision of more resources to the Committee, its sub-Committees and the Secretariat. Secretariat support to the Committee is extremely thin with only 2 full-time officials, only one with tax background. Strengthening of the committee was agreed in Addis Agenda as well. For our part, India is willing and ready to be the first to provide appropriate resources to the Voluntary Trust Fund which has been nearly always been moribund.

 

Mr. President,

 

The Addis Agenda recognizes that the foremost driver of domestic resource mobilization is economic growth which requires governments to strengthen tax administration, implement policies to enlarge the tax base to generate additional resources and combat corruption in all its forms.

 

In this spirit, the Indian government is currently implementing a wave of reforms, apart from encouraging digital over cash transactions, the most landmark is of the introduction of one single Goods and Service Tax, GST in which all other indirect taxes would be subsumed.

 

GST is a consumption based tax levied on sale, manufacture and consumption on goods & services at a national level. The indirect tax component will decrease from 27-30% to 17-18% with GST, making a number of those goods more affordable for consumers.

 

A single rate will ensure low compliance costs, obviate classification disputes, and ensure uniformity of approach amongst all players. Given the large size of the country, the concept of one country-one tax is very important in integrating the economy and improving efficiency. This will come into being from 1 July 2017. Preliminary studies indicate that the growth in GDP can be between 2-2.5% with the implementation of a well-designed GST. The increase in exports can be between 10-14%

 

As tax cascading disappears, the industry will move to the lagging regions because of lower costs and thus bring these into the growth dynamics. It would result in a big reduction in compliance costs for manufacturers that have assembly lines set up across different states in India.

 

Mr. President,

 

While developing countries, like mine, are taking measures to improve their domestic tax revenue base, globalization demands a more participatory, transparent, accountable and democratic global governance structure on tax issues. And the UN under its new Secretary General and his team must decisively and with determination support efforts to reconfigure and realign international decision making with contemporary realities. This august body's universality and legitimacy bestows upon it this responsibility and it must deliver.

 

I thank you.

 


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