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Poor countries remain poor because global tax evasion - Washington Post

Poor countries remain poor because global tax evasion - Washington PostAs journalists take a fine comb through the 2.6 terabytes of data obtained from the servers of Mossack Fonseca, the world's fourth biggest "offshore law" firm, they are sure to uncover more and more of the web of dealings that tie politicians, businesspeople, celebrities and their kin to that tax haven and others.

But what's so scandalous about the Panama Papers isn't just that there's a nexus of rich people, some elected, who make profits by evading taxes. It's that so much of the money moved through tax havens would otherwise be taxed by some of the world's poorest, most revenue-hungry governments, Washington Post writes.

Tax revenue is one of the strongest indicators of an economy's health. In many developing countries, with poor and/or rural populations, collecting tax is expensive for the government, and unaffordable for the majority of citizens, who may work in the "informal economy" anyway. Therefore, much of the tax revenue is expected to come from commercial transactions and foreign investment. But almost half of all investment in developing countries is funneled through tax havens.

The United Nations Economic Commission for Africa estimates, in a recent report, that African governments lose between $30 billion and $60 billion per year to tax evasion, or other forms of what they call "illicit financial flows." But that figure doesn't account for examples like that of Tullow Oil above. Matt Salomon, chief economist at the Global Financial Integrity, told the Canadian Broadcasting Corp. that he thinks the amount siphoned, mostly legally, from developing economies into tax havens is around $1 trillion.
Poor countries remain poor because global tax evasion - Washington Post

That loss of tax revenue is a destabilizing force in poorer countries, as well as a challenge to their sovereignty. For most low-income countries, tax revenue represents less than 20 percent of their GDP, whereas the average among richer countries is above 30 percent. Without tax revenue, less savory options present themselves -- think foreign aid with strings attached, or resource extraction at the expense of people and the environment.

Via: Washington Post
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