AKP should see taxation as a tool for development, not punishment

“The nature of trade and the economy has changed in the world. In the past, goods and commodities passed through concrete boundaries and taxation was easier. Now there are intangible services and transfers that make it problematic,” said Leyla Ateş, an associate professor of tax law. The international rules for tax law set in the 1920’s are no longer sufficient according to Ateş, who is currently a member of the academic staff at Istanbul Kemerburgaz University.

Looking from that perspective, the Turkish government’s efforts to push Twitter or YouTube to pay taxes in Turkey would have made sense.

But the government brought the tax issue to the agenda only after audio recordings, purportedly showing corruption in the cabinet, were leaked on their sites last March. So it was obvious that the issue was not tax evasion.

Instead of being used as a tool to intimidate dissident voices, taxation should be used as a tool to promote development and equality. The latter obviously can only happen if taxation is done efficiently and tax evasion is prevented.

Unfortunately, the world’s biggest multinational enterprises’ (MNEs) tactics on tax avoidance cost billions of dollars to the developing world. From 2003 to 2012 the developing world lost $6.6 trillion in illicit financial flows, which include capital outflows that stem from crime, corruption and tax evasion.

A total of 73 percent of the world’s largest MNEs operating in several countries disclose no information about the amount of tax they pay in foreign countries.

At the expense of boring you with numbers, let me add that tax avoidance by wealthy individuals and MNEs deprive developing countries of tax revenue worth $64 billion in personal income taxes and $160 billion in taxes on corporate profits. Can you imagine; this is more than the roughly $135 billion invested by OECD donor countries in 2013 in the shape of official development assistance.

In other words, rather than giving aid, we could generate the same amount of money and even more if we could stop tax avoidance by wealthy individuals and MNEs.

I used the term tax avoidance instead of tax evasion since MNEs and wealthy individuals are not doing anything illegal. They are just using loopholes in the system. And certain countries provide them these loopholes.

Some of you would remember the famous Luxembourg leaks, the financial scandal that broke last November. It was revealed that more than 340 companies had transferred profits to Luxembourg as they were granted so-called tax rulings which enabled some corporations to lower their tax bills to less than 1 percent of profit. 

So tax justice is critical for economic improvement. The Civil-20, an engagement group which is the voice of civil society, will try to make sure that the G-20 leaders who will meet in Antalya next month get this issue right.

Tax justice is not an issue ignored by the G-20, which initially delegated the work on the Organization for Economic Cooperation and Development (OECD).  But the Civil-20 believes the OECD is the rich countries’ club and therefore it does not take into account the needs of developing countries. In fact, the OECD has produced an action plan on what is technically called “Base Erosion and Profit Shifting” (BEPS). Take this as an action plan that will force MNEs to stop using loopholes. 

When the Civil-20 leadership meets the G-20 leadership in Antalya next month, it will say this action plan needs an effective monitoring mechanism so it does not stay on paper, according to Ateş the co-chair of the tax justice working group in the C-20. 

The C-20 will also tell leaders the G-20’s promise that “the era of bank secrecy is over” will be broken, especially if countries are to choose which others they will exchange information with. The Civil-20 fears that will create a severe disadvantage for weaker countries.

Talking about such a technical issue in the midst of all this current chaos in Turkey could sound absurd. But these are important issues.

Do you recall the famous Swiss leaks, another giant tax evasion scandal that involved the HSBC? Among others it was revealed that more than 3,000 clients were associated with Turkey.

Even Mexico started an investigation about the accounts that appeared in the leaked documents. Nothing of that sort has taken place İn Turkey.

Ironically, Turkish President Recep Tayyip Erdoğan recalled the Luxembourg leaks only when Cansen Başaran Symes, as the head of Turkey’s Industrialists’ and Businessmen’s Association (TÜSİAD), criticized the government’s economic policies. Erdoğan tried to hit at Cansen by indirectly recalling that she formerly worked in the international company that was involved with the Luxembourg scandals. 

Unfortunately, tax issues are seen by the Justice and Development Party (AKP) as a weapon to punish and intimidate dissident voices. The Doğan Media Group, which this paper is part of, was sentenced in 2009 to a fine of proportions unseen in Turkish corporate history.

Let’s hope that with the Turkish presidency of the G-20 and the AKP government will get the right perspective on taxation.