Or if you prefer, here\’s today\’s Ritchie!
Developing countries are losing approximately $100 billion dollars every year due to trade mispricing, according to a new report from Global Financial Integrity (GFI).
Ooooh, my! So, what does the report actually say?
Well, they measure the amount of trade they think is mispriced, then look at corporate tax rates, click the calculator and say multiply one by the other and you\’ve got the tax lost.
Now, umm, where have we seen a similar technique then?
Ah, yes, Richard Murphy\’s estimate of the tax gap, wasn\’t it?
And GFS do in fact say that their new report is based upon a Christian Aid one….which was written with the aid of Richard Murphy and John Christansen. And another one from the Tax Justice Network which is essentially the same two people again.
Let us remind ourselves of what the problem with Ritchie\’s calculation was. You cannot take headline tax rates and compare them to tax collected and then claim (or assume, assert) that the gap between the two is because people are being very naughty boys.
For governments deliberately and specifically put into the tax code allowances for certain activities they think desirable which reduce taxes legally owed from those headline rates. In the case of our domestic UK corporate tax system we\’ve got R&D allowances (125% of amount spent on R&D from memory), various odd depreciation thingies, training allowances and for all I know a turkey dinner for Tom Cobbleigh allowance.
This means that the observed gap between headline rate as a percentage of profits and the amount collected cannot be assigned to naughtiness. We have to strip out those entirely legal, legitimate and just as Parliament intended, allowances first.
Which Murphy, you might recall, did not. Indeed, he gets very touchy when you point out this to him.
So, what do GFS do? Yes, they look at headline rate and tax collected and assume the gap is because someone\’s being a naughty little girl.
They entirely ignore that some countries have tax subsidies (even rebates in some places) for exports. Entirely ignore that some (indeed, many) countries have tax free holidays for exporters and new companies.
In short, they make Ritchie\’s mistake. They do not account for the things which governments deliberately put into their tax codes in order to encourage behaviours they deem desirable.
As such their report is as value and content free as Ritchie\’s original was. No surprise that he praises it then and insists that this requires action, eh?
Click here to download a full copy of the report, which adds to the growing literature on this subject and stresses the urgent need for action to tackle this abuse.
Me personally I\’d like to see action against people who lie to us for political and ideological reasons….