The conversation on the need for a UN Convention on Tax has been gaining momentum with economists, researchers, intergovernmental bodies, and campaigners calling for a fairer organisation to handle tax matters at the global level.
The need to come up with a UN convention on Tax was first tabled by the Africa Group at the United Nations in 2019. African leaders firmly believed that a UN Tax Convention is a necessary tool in the fight against illicit financial flows and would provide a table where all countries could compete equally.
Fast forward three years later, at the fifty-fourth session of the Conference of African Ministers of Finance, Planning to and Economic Development, the Committee of Experts urged the United Nations to start negotiations on a convention on tax matters at the UN.
In the most recent news, the UN Secretary General in his report to the General Assembly has hinted at his willingness and readiness to support the movement calling for tax matters to be discussed at the UN. The UN, relying on its “Our Common Agenda '' framework, is prepared to take an approach described as “more networked”, “inclusive `` and'' effective”.
Secretary Antonio Guterres noted that policy frameworks on combating illicit financial flows are growing but they are not inclusive. He further notes that even the most inclusive frameworks only comprise 75% of the member states, therefore, even what is termed inclusive is not inclusive enough.
Seeing as the conversation on the need for a UN Tax Convention has shifted from do we need one to how do we do it, it is imperative to understand why such a framework is essential and how we stand to benefit from this kind of tax reform.
The past
The need for an international body on tax was first recommended by an expert panel chaired by former Mexico President Ernesto Zedillo in July 2001. The report advised the High-Level Panel on Financing for Development to consider the potential benefits of an International Tax Organisation. In their view, an ITO would be most effective in dealing with the evolving tax issues as “globalisation has progressively undermined the territoriality principle on which traditional tax codes are based.” An ITO would further assist developing countries to curb the misuse of transfer pricing.
Following this recommendation, the creation of an ITO was one of the topics for discussion during the Financing for Development summit in Monterrey where it was not agreed upon. Similarly, during the following summit in Doha in 2008, the matter was not agreed upon. The need to set up an intergovernmental tax body under the auspices of the UN was a topic for discussion in 2015. The proposal for such a body was blocked by a group of OECD countries.
The present
The OECD is the table where discussions on tax matters have always been carried out. The organisation has a membership of 38 countries from rich and developed countries. Following lobbying and campaigns against OECD-led processes due to their exclusive nature, the organisation developed an inclusive framework that would allow other countries to be members upon agreeing to a number of conditions. Despite granting developing countries a seat at the table, the inclusive framework has been described as not so inclusive. The organisation has failed at getting its members to play at equal footing and using fairer rules.
Why is a UN Tax Convention important?
A tax convention under the auspices of the UN would help negotiate tax policy reform at the global level and mark a complete shift from the OECD-led process.
The convention will establish a tax governance structure where all countries could participate on equal footing. In this regard, participation must be meaningful and not just a formality. Questions such as would each country have a vote or would Africa be voting as a bloc are paramount.
Having a large number of countries on the table and trying to get them to participate might not necessarily be effective. The goal should be to come up with a small group of negotiators who will effectively represent the broader constituency. In lieu of this, it is imperative that the continent moves as a bloc.
A UN Tax Convention would also amplify the fight against illicit financial flows. A report published by UNCTAD showed that Africa loses $89 billion annually to illicit financial flows. The convention would increase transparency and cooperation among governments. This would be beneficial in creating more coherent tax rules and standards.
The convention would also reduce the highly complex network of bilateral and multilateral treaties making up the global tax system. This would create coherence and effectiveness of the tax system at the global level and help reduce tax dodging.
The proposed convention would further advocate for progressive tax systems and link these tax systems to matters such as human rights, development, the environment and equality.
In conclusion, it is important to be wary of the idea that the UN Convention on Tax would be a perfect system that would cure all the ills of the OECD, while this is the optimistic view, the UN Convention on Tax might also be plagued with some of political and economic realities that have stifled the OECD-led process. Nonetheless, it is clear that a UN Convention on Tax is an essential way for Africa to get a seat at the table and get off the menu. Although a seat at the table is important, it is also essential that Africa has a voice and the capacity to influence outcomes. A seat at the table without a voice would purely be tokenism.
