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INTERNATIONAL TRANSPARENCY PUBLISHED NEW REPORT ABOUT RISKS OF CORRUPTION IN GOVERNMENTS TAX POLICIES
According new report companies operating in developing countries receive over US$2 billion in tax incentives every week. Governments all over the world promote tax incentives as a tool to attract domestic or foreign investments, asserting a trickle-down effect for the public good and the country overall. However, taking a closer look at their effectiveness, there has been no irrefutable proof or data to determine whether this has worked. In many surveys, investors even consider tax incentives to be among the least important factors affecting decisions to invest.
Tax breaks can sound like music to one’s ears – especially at a time of the economic recession caused by the COVID-19 pandemic. But tax incentives are measures provided to businesses, often with the overall aim of developing sectors of the economy, incentivising investment or boosting employment. When not well-assessed and justified, tax incentives can end up eroding the tax base and deprive governments of much-needed revenues.
Transparency International’s new report illustrates the risk of corruption driven by powerful interest groups in the process of designing and granting tax incentives. Through case studies and analysis, it demonstrates how tax incentives can be granted as a result of undue influence by powerful groups, rather than as the result of a proper assessment of the need for such incentives and of the socio-economic benefits they would bring.
New report shows harmful tax incentives thrive through weak national laws and oversight as well as a lack of global norms governing corporate political donations, lobbying and conflicts of interest between the sphere of public officials and the business world.
In the report, we can look at real-life cases where undue influence destroys any positive economic effect from any tax incentives.
According with report tackling corruption in tax incentives requires a two-pronged approach that strengthens transparency and accountability of tax incentive regimes while limiting the space for different forms of undue influence.
This includes developing tax incentive regimes through transparent processes and regularly evaluating such incentives to assess their effectiveness, as well as building international cooperation on establishing a global minimum corporate tax rate.
At the same time, we need strong safeguards to ensure that political donations do not result in undue policy influence, and open, public registers of interactions between lobbyists and public officials. Governments should also create a «legislative footprint» for every regulatory proposal, among other measures against state capture.
Beyond these policy changes, need sustained strategic cooperation between states to build a strong counterweight to those that influence the global tax system in their own interests. We should also closely follow the massive industry that is behind reinventing corrupt practices, finding new loopholes to exploit and influencing government decision making. As this industry evolves, our understanding of corruption has to evolve with that. According with report we have to evaluate what a corrupt practice is not just inherently based on the principle, but in light of its social and economic outcomes – and those are especially severe with regards to tax policy.