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The EU has removed Switzerland, UAE and Mauritius from the list of countries considered as tax havens, once again, giving a clean-sheet to the elite who have used these financial centres to launder their wealth. The bloc had set up a blacklist and gray list of tax havens after widespread avoidance schemes were being used by corporations and wealthy individuals to lower taxes.
There is no universally accepted definition of what a tax haven is. Many of these places offer facilities beyond tax that allow people or companies to escape the laws, rules and regulations elsewhere using secrecy as a prime tool. Luxembourg and Switzerland, where we are told Pakistan’s wealth is stashed, offer secret banking, corporate tax avoidance and other offshore services. Switzerland, a major economic partner of the EU, was removed from the list after it committed to change its tax rules.
UAE was also removed from the blacklist after it adopted new rules on offshore tax structures. There are no corporate taxes in the UAE, making it possible for foreign firms to avoid paying taxes. Most often these are shell companies and the UAE now only considers firms with real business activity to be registered.
Tax havens were once seen as a sideshow to the global economy but have revealed an interlinked network of legal and not-so-legal means much bigger than we ever imagined. Tax havens cost governments around $500 billion a year in lost corporate tax revenue. This is apart from tax revenues lost by individual’s incomes; the exact figure of which is unknown due to secrecy. This mostly affects developing countries as offshore capital is drained from poor countries to rich ones.
The causal relationship between tax havens and corruption has been established by many reassured economists. At this year’s UN General Assembly even Prime Minister Imran Khan mentioned that billions are siphoned by corrupt politicians to these tax havens and that there must be a deterrent. It wasn’t long ago when Nawaz Sharif was removed from office after his family was implicated in the infamous Panama Papers case which revealed they had bought expensive London properties through these offshore accounts.
The decision to remove UAE, Switzerland and Mauritius from tax haven list will have a far-reaching effect; the system is growing and will lead to worsening inequality, vulnerability to crises and political damage. Moreover, major players such as British territories of Cayman and Jersey are not even included in the offshore system of tax havens. Rather than giving sweet treats to entities and people, it is necessary to rein in these offshore financial centres and curb tax haven activity is poor nations are to prosper someday.
