It has been a week since the publication of #PanamaPapers, and the international cooperation between journalists have had a massive impact. Forcing Iceland’s Prime Minister to resign from office and leaving UK PM David Cameron in a more than uncomfortable position, its political consequences are huge. While some argue that ICIJ is working for Western interest since relatively few US citizens appear to be involved in offshore companies in Panama (and they’re relatively low profile, too), it is clear that the whole content of Panama Papers has not been analysed, and that the US has been struggling with tax evasion on a national level itself. It is often argued that offshore companies and accounts are not illegal per se, and that there’s a tradition of tax evasion in many countries (an argument that keep surfacing in discussions in Luxembourg), but that is not the point. It’s not about whether or not the practice is illegal, but it’s much more about morality, and the lack of international regulation.
Taxes are not equal, and not fair
Looking at the contents of the Panama Papers, it’s obvious that it’s exclusively upper class or rich people who were involved with offshore companies/accounts. This is quite logical, since people with a lower income will have lesser access to the required infrastructure, and the required funds. Thus, mainly rich people benefit from possible tax evasion, and Gabriel Zucman, an US economist, estimates that around 8% of the world’s wealth, roughly $7.6tn ($7,600,000,000,000) is hidden in tax havens. He furthermore figures the annual loss of tax revenues at $200bn ($200,000,000,000) a year, costing governments all over the world the much required funds to invest in different areas, such as infrastructure or education. However, governments will need to compensate for the loss of tax revenues by increasing the tax for everyone. As such, it will be people with lower income, who are not evading their tax commitments, who are suffering from offshore banking. Governments will not only be likely to increase income tax, which is a more equal and fair tax since it hits people relatively to their income, but also basic taxes such as VAT, which is arguably the more unfair tax, since it will affect all citizens, regardless of their income. Read More