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The ethics of tax justice

On day two of the conference on Tax Justice, Domestic Resource Mobilization and Stemming Illicit Financial Flows in Nairobi, Kenya, the focus turned to ethics. Anthony Egan SJ, reports.

Dr Jörg Alt SJ, research and advocacy officer for Jesuitenmission in Nürnberg, Germany and one of the organisers of the conference on Tax Justice, held in Narobi, Kenya, framed the day’s discussions with a presentation that showed how Catholic Social Teaching presented a valuable critique of neoliberal economics that had important implications for tax justice.

Alt noted that even where multinational corporations acted within the law, many felt that their behaviour was not always right. Among other things the neoliberal view includes radical free markets, individualism and unrestrained growth, rooted in very limited roles of states and low taxes.

He argued that Catholic Social Teaching embraced almost the polar opposite.

Catholic Social Thought is committed to social justice, ecologically sustainable markets and human dignity. It sees persons as communal by nature, stressing sustainable growth, with an emphasis on a state and a tax system that promotes fairness, including the moral priority of labour over capital.

Catholic Social Teaching seeks a system that “balances the wellbeing of individuals AND the wellbeing of all, how much it advances solidarity without destroying subsidiarity and how much it respects justice without endangering sustainability”, he continued.

Regarding the latter, he added, “it should act out of love for all, but give a special consideration to the poor and disadvantaged, to alleviate their suffering and empower them to handle their own interests.”

Tax injustice — be it (legal) tax avoidance or (illegal) tax evasion — violates these Catholic principles.

Beyond this, Alt said, we need to break out of a mindset that sees neoliberalism as the only capitalist economic model. Many economists, deeply concerned with how this system creates a mentality where tax injustice (whether legal or illegal) is seen as rational or justified, have proposed alternatives.

“There was a time before neoliberalism,” he said, “and there will be a time after neoliberalism.”

Willy Moka SJ, dean and professor of the philosophy faculty of Loyola University Kinshasa, DRC, teased out many of Alt’s points in his presentation.

Referring to a few specific points in Catholic Social Teaching pertaining to taxation, he noted that there was a moral imperative for a person who couldpay taxes to pay taxes, in accordance with their means.

He noted three points raised by the 1986 US Catholic Bishops’ Pastoral Letter Economic Justice for All. First, tax systems should raise revenues adequate to meet public needs. Second, such a system should be progressive, meaning that those who were better off should pay more tax —because they could afford to — and tax burdens on the poor, including indirect taxes like sales tax, should be reduced. Third, those below the poverty line should not pay taxes.

Moka, echoing Pope John Paul II, said that at the heart of this is the concept of ‘solidarity’. Beyond solidarity, he noted the importance of enforceability of a tax regime. 

Tax policies should be implemented efficiently and transparently, in a way that evasion of responsibility should be avoided. The ethical application of this, “allows the interdependence of three important dimensions of tax justice: the understanding of the payment of taxes as a duty of solidarity; the reasonableness and fairness of the application of taxes; and the integrity in the administration and distribution of public resources, goods, and services.”

Shifting away from explicitly Catholic social ethics, Attiya Waris, professor of fiscal law and policy at the University of Nairobi, invited us to consider the question from a different angle.

Not so much from the ability to pay tax but the right to receive the benefits of taxation, particularly in public health, education and welfare.

She expanded further on this from the perspective of gender, noting that those most in need of taxation’s benefits were the poor. The majority of whom in Africa are women.

There is however, she noted, a distinct implicit and explicit gender bias in contemporary taxation policies. In tax credits there are many cases where women suffer gender bias.

In Morocco for example, a man may get a tax credit as the sole breadwinner in a family but a woman must prove she has a dependent husband. Implicitly, poor women suffer more from indirect taxation gathered through sales taxes.

She further argued that tax policies are mostly developed by men with men in mind.

For taxes to be fair and to actually benefit those most in need in society, they needed to focus less on indirect taxation and more on wealth and multinational corporations, she added.

These comments came after other presentations at the conference highlighted how tax breaks for multinationals had the effect of a net outflow of billions of dollars from Africa each year.

Taxation needs to be well-managed and funds shifted to where they are most needed.

Distinguished Yale University philosopher Thomas Pogge further highlighted the need for justice in taxation. He warned that tax policy is more often than not formulated by the rich to serve their interests — in some countries, like the United States, through well-funded lobbies — in what he described as ‘regulatory capture’.

Like Waris, he saw the need for more active public engagement in tax policy formulation rooted in transparency and a focus on tax as a means to promoting holistic well-being of all, particularly the poor. Properly applied, he insisted, taxation is a crucial means to reduce social inequality.

The final speaker, Chris Morgan, who heads the Global Tax Policy Unit for KPMG, in London, echoed Pogge’s concerns. 

Drawing on Pope Benedict XVI’s encyclical Caritas in Veritate for inspiration, Morgan insisted that tax policy had both a legal and moral component. Legality meant that taxation could not simply be arbitrary; morality emphasised that it should serve the common good and not be a dodge for the rich or a means of enrichment for the corrupt.

In short, Morgan advocated for a responsible tax system that was based on broad consultation to reach agreed upon policies. Tax planning, he said, was complex; it needed discussion and reflection in a positive spirit.

For companies in particular, Morgan proposed that they needed to respect not simply the letter of the laws of taxation but go beyond the law, seeing their contributions as acts of gratuitousness — free giving — based on fair and reasonable interpretations of tax laws that promoted the common good.  

The presentations I have sketchily summarised above offered much food for thought about taxation. 

Coming from a handful of different ethical frameworks, they raised as many questions as answers. While united in a common belief that a proper and fair tax system, particularly in developing countries in Africa and elsewhere, is both necessary and desirable, they invite us to reflect further.

If we accept their basic premise, what other areas do we need to examine? 
One obvious issue (raised in various ways directly or indirectly in the conference) is how one implements sound tax policies, given the limited capacities of many countries to collect taxes. 

Another question is the effect of corruption — not only on tax collection itself, be that through corporate-state collusion in avoidance or evasion, or through corrupt collection processes, but in how public attitudes affect taxation.

If one believes a state is corrupt or mismanaged, and that tax monies will not reach the people for whose benefit it is collected, why be honest with one’s taxes?

These and other questions highlight the fact that the presentations of the Nairobi conference are but an important beginning in an ethical-legal debate that must be taken up by governments, corporations, civil society and individuals not just in Africa but throughout the world.

* The opinions expressed here by Spotlight.Africa contributors and editors are their own and not official statements of the Society of Jesus in South Africa or of the Catholic Church unless explicitly stated.