Taxation and sustainable business

Alexander Ezenagu, 'Carbon Taxation as a Tool for Sustainable Development in Africa: Evaluation of Potentials, Paradoxes and Prospects'

The earth’s climate is changing and not in a good way, for most people. The years 2014 and 2015 witnessed some of the hottest years on record. The change in climate has severe implications for the economy of the world and the lives of earth’s inhabitants. The effects of climate change cut across continents and travel far and wide. Africa cannot fold its hands, and must join efforts of other countries to curtail global warming and climate change. Calls for the introduction of a carbon tax into the tax lexicon in African countries may not have come any sooner. South Africa for example has developed a robust proposal aimed at introducing a carbon tax system by 2016. The aim is to reduce greenhouse gas (GHG) emissions from key sectors such as mining, transportation and agriculture and to achieve sustainable development. Following South Africa’s perceived progress in its carbon taxation efforts, there have also been increased calls for Nigeria and other African countries to reform extant taxation laws to introduce a carbon tax system for key polluters in the extractive sector. This paper evaluates the utility, desirability and potentials of achieving sustainable development in Africa through carbon taxation. Following a discussion of the motivations for considering a carbon tax system, the author evaluates potential impacts of a carbon tax system on African economies, particularly on poor and vulnerable communities who despite contributing less to GHG emissions may bear disproportionate burden of combating it. I then evaluate the potential legal and logistical barriers that a carbon taxation system might face and propose legal frameworks for addressing these barriers. I conclude that, notwithstanding the administrative hurdles to cross, the potential tax apathy and potential opposition by big emitters, carbon taxation should be imposed by African governments on big carbon emitters, and habits with Pigouvian effects. Carbon taxation presents the "double dividend" of revenue generation and attitudinal change, and as such should be implemented by African countries.

Alexander Ezenagu is a doctoral candidate at McGill University.

Stefan Speck, 'Environmental taxation – a means for catalysing the transition to a green economy and support for sustainable development'

EU environmental policies address a range of environmental and resource use challenges and there are many binding targets and non-binding objectives established at EU level in response to these challenges for the period 2013-2050, with several of them addressing environmental and socio-economic considerations together. Achieving them cost-effectively often requires the use of market-based instruments (MBIs) in tandem with regulations. Environmental taxation and in particular tax-shifting programmes (i.e. environmental tax reform (ETR)) are high on the political agenda. The primary objectives and benefits of environmental taxes are to reduce pollution and resource use. They are also several secondary benefits: for example, such taxes contribute to a healthier society and hence lower health-related costs, they trigger eco-innovations that generate wealth and jobs, while the broad diffusion of environmentally friendly technologies support sustainable systems of production and consumption. Taxes, eco-innovations and their diffusion are key enabling factors in the transition to a green economy alongside investment instruments. A further benefit of environmental taxes is their fiscal function. Well-designed taxation systems should be efficient as well as enhance economic growth and help achieve important social objectives e.g. better health, and contributing to sustainable development. Environmental taxes can achieve non-environmental goals and thereby contribute to a holistic, all-inclusive policy approach aiming to contribute to achieve sustainable development. Environmental taxes have a role to play in the overall fiscal system. Although their revenue potential is well below those of labour and consumption taxes, such as value added tax, they are of the same order as those levied on the income of corporations. The coming 5-10 years may provide room for tax-shifting programmes by increasing the tax take from environmental taxes and reducing labour taxation, but the question arises whether this policy approach will be at the disposal of policy makers in the longer term. Longer-term developments including demographic changes and technological breakthroughs on energy and transport in the transition to a low-carbon, green economy will contribute to the erosion of the current tax bases in European countries. Some countries have already developed new environmental tax instruments but much more needs to be done on the design of resilient, long-term tax systems in Europe in the face of such systemic challenges. It is the consideration of both issues together – energy/carbon tax and labour tax base erosion – that brings new questions and more systemic policy challenges to the fore. Also relevant are the rather long time-frames required for revising or adapting fiscal systems as for example observed in the many attempts at revising the energy taxation scheme by introducing an energy/carbon tax which started in 1992 when the European Commission put forward the first proposal.

Dr Stefan Speck is working at the European Environment Agency (EEA) in Copenhagen. He holds a PhD in economics from Keele University in England. His work at the EEA is on the application of market-based instruments (MBIs) for environmental policy, environmental fiscal reform and the green economy.  He published widely on environmental fiscal reform and green economy; he was co-editor of the books Environmental Fiscal Mechanism and Reform for Low Carbon Development: East Asia and Europe (2013) and Environmental Tax Reform: A Policy for Green Growth (2011) and was responsible for the EEA reports Towards a green economy in Europe EU environmental policy targets and objectives 2010-2050 (2013), Resource-efficient green economy and EU policies (2014) and Environmental taxation and EU environmental policies (2016).

Matti Ylönen, 'Who’s to blame for the money drain? The demise of analyses of corporate power and the rise of the anti-corruption agenda'

Fighting corruption has been one of the most prominent goals of development policy since the late 1990s. However, the emergence of an anti-corruption agenda was not the result of a particular increase in corruption at that time, but rather was the result of a multitude of political forces. In this article, I argue that one important factor that enabled the rise of the anti-corruption agenda was the demise of the analytical and policy framework focusing on corporate power over states, which was championed by the United Nations Centre for Transnational Corporations (UNCTC) in the 1970s. The UNCTC’s project faced severe hardships in the 1980s amidst the changing global political and intellectual climate, resulting in the destruction of its epistemic community and ultimately the dissolution of the UNCTC in 1993. I maintain that the resulting intellectual vacuum created an environment for analyses and policy frameworks that focused on the role of developing countries’ public sectors in draining the resources of development. One result of this was that the development policy community ignored the role played by financial intermediaries, tax havens, and the “pinstripe infrastructure” in corruption for more than two decades. It was only with the rise of the tax justice agenda after the 2007–2009 financial crisis that corruption watchdogs began to recognize these drivers of corruption. However, this awakening has remained half-hearted, as most of the discussions around corruption still focus solely on public officials and politicians.

Matti Ylönen is a doctoral candidate at the University of Helsinki.

Kim Willey, 'Taxing for the Long-Term: Using Tax Policy to Encourage Sustainable Corporate Value and Reduce Stock-Market Short-Termism'

This paper considers whether tax policy can be used to effectively reduce capital market short-termism. Specifically, this paper assesses the capital gains and dividend tax reforms proposed primarily in the United States, and the financial transaction tax proposed in the European Union. The argument is presented that these forms of tax will do little to actually address the fundamental issues causing short-termism in capital markets, and could have negative unintended consequences. Instead, for tax policy to positively impact capital market short-termism, the focus needs to be on encouraging sustainable corporate value at the company rather than shareholder side of the equity investment chain.  

Kim Willey Kim Willey is a PhD student in the Faculty of Law at the University of Cambridge. Kim has an LL.B. and M.B.A from the University of Victoria, and a Masters in Law from Osgoode Hall at York University in Toronto, Canada. Kim’s research is in the area of corporate governance and accountability, and focuses on short-termism in equity capital markets. Specifically, Kim is looking into the assertion that equity markets are becoming increasingly myopic and focused on short-term financial results at the expense of long-term value creation. Prior to starting her research, Kim had over a decade in private practice as a corporate lawyer advising clients on international transactions, both in Bermuda and Canada.

David Quentin, 'Corporate tax policies and the deliberate creation of sustainable development risk'

David Quentin is a Postgraduate Research Student at the Queen Mary University of London and a Senior Adviser to the Tax Justice Network.

Jill Juma, 'Revenue Implications of Trade Liberalisation in East Africa'

Trade taxes are a primary source of government revenue in East Africa primarily because they are easier to administer in comparison to domestic taxes. East Africa is steadily embracing trade liberalisation which will have a direct correlation to revenue decline, which if not offset by increased domestic tax revenues, will lead to a decline in total tax revenues for the region. This will in turn lead to huge deficits in attaining the set out socio-economic goals. Often times these deficits cannot be fully offset by government borrowing or donor commitments hence growth may not be realised unless a well-structured taxation system is put in place, or in the case of trade liberalisation, adequate policy space to narrow the gap of reduced trade revenues. The purpose of this paper is to investigate the impact of trade liberalisation on total tax revenues in East Africa in particular the East Africa Community (EAC). The paper seeks to demonstrate whether increase in revenue is directly correlated to a stricter or more liberalized trade regime, or whether trade revenue is dependent on additional factors such as proper institutions, enforcement and policy space. The paper will begin by giving a description of the total trade and domestic tax revenue, then the next section will examine the relationship between trade liberalisation and tax revenue, the third section will then analyse the impact of trade reforms on domestic and trade tax revenues, and the final section will assess the impact of trade liberalization on various categories of tax and further give recommendations and a conclusion.

Jill Juma is a Policy Analyst at the CUTS International.

Alhassan Atta-Quayson, 'Africa Mining Vision Gap Analysis and Mapping Study for Ghana and ECOWAS Region'

With a focus on the fiscal component of the Africa Mining Vision and its implementation, this paper examines the efficiency with which mining taxes are collected as well as how these taxes are shared among key stakeholders within a context of evolving mining regime in Ghana and the West African sub-region. The author provides some background to emerging mining regime, especially in Ghana where major fiscal initiatives were announced (with many of them being implemented) following the adoption of the AMV. These initiatives included fixing of royalty rate at 5 per cent (from a previous range of 3-6), hiking of corporate profit tax to 35 per cent (from previous level of 25 per cent), adoption of transfer pricing regulations, changing the capital allowance regime, proposal to implement windfall profit tax as well as the country's decision to renegotiate mining agreements. Though the initiatives were deemed relevant in improving the country’s take from the mining sector and to support sustainable development, it was observed that there is more work to be done in the area of ensuring that tax rules are applied to the letter and revenues generated from the mining sector are efficiently and equitably (inter- and intra-generational) utilized. For example the recently adopted transfer pricing regulations appear to be too general and in the absence of regional reference prices for various goods and services, their implementation have not been smooth. Though new initiatives followed adoption of the AMV, they cannot be attributed solely to the adoption of the vision which actually suffers from poor visibility as many citizens and citizens groups are unaware of the vision and its implementation. Nonetheless, there are opportunities for Donor Agencies, International Financial Institutions (IFIs) and the Organization for Economic Co-operation and Development (OECD) to work with African institutions to advance objectives of AMV to propel inclusive sustainable development. For example the OECD’s “Base Erosion and Profit Shifting” project and the EU’s Anti-Tax Avoidance Directive can be important starting points for stalling the flow of untaxed corporate profits which is a major issue in the AMV. In view of these findings, the study recommends that state departments and agencies must be re-oriented to view the state machinery as developmental vehicle to support the AMV. Further there is need to increase their capacity (expertise, personnel and technological) to enable them implement the AMV as expected. Finally, there is need for increased meaningful collaborations among African institutions (member states, intergovernmental organizations and citizens organizations) and collaborations with global north organizations.

Alhassan Atta-Quayson is a Lecturer at the University of Education, Winneba.

Giedre Lideikyte-Huber, 'Economic incidence of the corporate tax: concept and distributional effects'

In this conference, I would like to present a part of my PhD dissertation, to be defended on the 21st of February, on the theory of the economic incidence of the corporate tax and its influence – or often the regrettable lack of influence - in corporate tax policy considerations. Understanding of the economic incidence of the corporate tax is in my view fundamental for any sustainable development policy planning; however, the economic studies in this field are often very little known even to tax law academics. In this presentation, I would describe the basic premises of this theory since the groundbreaking Harberger’s work in 1960s, would present major conflicting issues in the contemporary studies and would end up describing the ongoing major corporate tax reform in Switzerland, its structure and projected effects in the framework of it. The economic corporate tax incidence theory holds that only individuals can bear a tax burden as any tax affects someone’s welfare. In addition, the tax incidence passes from legal structures to individuals instantaneously, thus inanimate legal constructs such as corporations cannot bear a tax burden. This theory seeks to clarify who exactly bears the corporate tax burden. It identifies several groups of persons to which the companies may shift its tax burden. The four principal groups who could potentially bear the corporate tax are corporate shareholders, all holders of capital (including the shareholders), labor providers, and consumers. Such studies currently provide conflicting results. However, we cannot ignore certain observations they produce. Firstly, it is almost certain that corporate taxes are borne not only by the shareholders, as very little studies point into this direction. Consequently, political arguments relating to corporate tax reforms and the problem of double taxation should not automatically assume the shareholder incidence. They should at least consider the effects on the other two major groups that constantly show up in incidence studies, namely all capital investors and labor. Secondly, the predominant contemporary view in academic literature is that labor supports a significant part of the corporate tax. This gives the corporate tax a completely different distributional dimension that must not be politically overlooked, as labor or consumer taxes are generally considered regressive. If a part (or all) of the corporate tax burden is indeed economically shifted to labor, however the state partially and completely integrates corporate taxes with the shareholders’ income tax, such taxation becomes highly regressive. In particular, not only do the shareholders not bear the economic tax burden (or bear only a part of it), in a system of full integration of corporate income, but they economically shift their individual income tax burden to other parties. All those uncertainties lead to delicate considerations about the overall legitimacy of the corporate tax. In relation to the sustainable development, it raises various questions, both at international and domestic perspectives. For instance, does one of the famous corporate tax functions, namely safeguarding the state’s territorial sovereignty by taxing and retaining profits generated within its borders, really work?

Giedre Lideikyte-Huber, University of Geneva.

Jussi Jaakkola, 'Fiscal Interdependence and Constraints on National Traditions of Tax Law'

It has become a commonplace to assert that international tax competition undermines national traditions of tax law. Competition exerts pressure on capacities to enforce fiscal, redistributive and regulatory functions of taxation, on which the design and legitimacy of tax systems in nation states have traditionally been based. Further ramification has been the erosion of social, democratic and environmental credentials inherent in European constitutional tradition, for the guarantee of which taxation exists. Tax competition, however, is a derivative phenomenon and becomes possible under the specific precondition only. Competitition is conditioned on fiscal interdependence between polities. In thorough observation, fiscal interdependence emerges as a more fundamental source for constraints on tax policies than competition-based policy strategies themselves. The present paper draws an outline of the essential features of fiscal interdependence. In the first phase, an analysis of diverse dependence structures that constitute fiscal interdependence is provided. Erasing the obstacles to cross-border financial movements has rendered corporations and capital exceedingly mobile. International deregulation of economy has not, to the notable extent, been complemented by supranational tax governance. The asymmetry between transnational economic convergence and absence of supranational tax integration has generated an ambigious legal settlement where economic mobility provides opportunities for economic actors to relocate from one tax jurisdiction to another and differentials between national tax systems serve as incentives to relocate. The analysis reveals how separate tax regimes are not interdependent on each other’s policies only but how private economic actors play a decisive role in the framework of fiscal interdependence. In the second phase, the paper considers the sense in which fiscal interdependence has constrained national tax autonomy. For decades, states have struggled to safeguard their tax autonomy by retaining the powers to regulate taxation at national level. I argue that while states have succeeded to avert supranational legal restraints on their power to tax, they have lost the most fundamental aspect of their tax autonomy. Following the republican philosophical thought, the most elementary mode of sovereignty is non-dependence from external arbitrary power. The fiscal interdependence defies such autonomy as it exposes states to the influence of foreign tax regimes and private decision-making. I assert that national tax traditions that have served as safeguards for sustainable social and democratic development have become more demanding to sustain under the pressures of inter-state dependence. The question is, how to address this through international tax governance. The paper has a philosophical emphasis and it contributes to theoretical framing that helps to understand the relationship between a) separate tax regimes b) national tax systems and private economic actors. Further, the paper provides some elementary ideas for international tax governance, where integration in tax-related policy fields is made conditional on the corresponding integration in tax regulation. This should be considered as a contribution to the discourse that concentrates on states’ prospects to regain their tax autonomy and reconstitute their social, democratic as well as environmental traditions of tax law. The focus of the paper is on the European integration.

Jussi Jaakkola is a doctoral candidate at the University of Turku.