Tax Transparency

The role of tax transparency and the exchange of information is vital in the fight against tax evasion and other illicit financial flows. In 2021, Asia Initiative was launched to focus on developing tailored solutions to ensure the implementation of tax transparency standards across Asia. Read here to learn more about transparent taxation.

On 14 July 2022, ministers from 13 Asian jurisdictions endorsed the Bali Declaration (Asia Initiative Declaration) as a call to enhance the use of tax transparency for sustainable domestic resource mobilization in the region.

To raise much-needed funds during the COVID-19 crisis and beyond, governments have to tackle tax evasion and other illegal financial flows. Transparency and information sharing play a critical part in this effort.

Information sharing is one of the most significant areas that now represents a contemporary international collaboration between tax authorities.

Tax transparency

Tax transparency is about putting an end to bank secrecy and tax evasion through global tax cooperation.

• It is the disclosure and publication of quantitative and qualitative information about the tax system that society requires to hold policymakers accountable and make educated decisions about how the tax system is working at a given moment.
• It is a method that provides the data necessary to guarantee that a tax system benefits all stakeholders, both inside and outside of government, including tax administrators, other government officials, legislators, the people who elected them, and those who pay taxes, including any identified disadvantaged and marginalized groups.

The data made accessible through a tax transparency framework is a component of a coordinated process that also includes-

• data collection, analysis, scrutiny, and dissemination
• discussion of the effectiveness of the tax system
• a wider fiscal framework of the spending side of public budgets

Accountability and transparency are two of the central pillars of good governance.

Global Forum on Transparency and Exchange of Information for Tax Purposes

The G20 declared the end of banking secrecy in 2009, and since then the international community has achieved great success in the fight against offshore tax evasion.

The Global Forum on Transparency and Exchange of Information for Tax Purposes is a key international body with over 160 members working on the implementation of international standards on tax transparency.

• The Global Forum is a key international body working on the implementation of international standards for tax transparency.
• It ensures that these high standards of transparency and exchange of information for tax purposes are in place around the world through its monitoring and peer review activities.

The main areas of expertise are the following:

• Exchange of information on request (EOIR): This standard requires the transparency of banking and accounting records as well as ownership of entities and legal arrangements. It provides a framework for obtaining information on requests between tax authorities.
• Automatic exchange of information (AEOI): This standard allows for the automatic annual exchange of information on offshore financial accounts.
• Capacity building and technical assistance activities: ensure that all our members receive support, and benefit from the tools to implement the international tax standards. Guidance material, e-learning courses, and virtual classes are accessible through the resources tab.

Regional Initiatives for tax transparency

The global forum is partnering with several regional organizations to run various capacity-building programs for transparency and the exchange of information for tax purposes.

Programs are currently being run, or in preparation, for the following regions: Africa, Asia, Latin America, the Pacific, the Middle East, and The Caribbean.

Africa Initiative

• The first regional initiative launched by the Global Forum is the Africa Initiative, which is also, therefore, its most advanced.
• This has included significant engagement at the ministerial level to ensure political buy-in and sustained momentum.
• This is reflected in the Yaoundé Declaration, which provides support to the fight against illicit financial flows from Africa.

Latin America initiative

• The Punta del Este Declaration is about maximizing the effective use of the information exchanged under the international tax transparency standards to tackle tax evasion, corruption, and other financial crimes.

Pacific initiative

• Together with the Asian Development Bank and other partners, the Global Forum launched 2020 a Pacific Initiative to raise awareness and enhance tax transparency for the benefit of developing Pacific Islands.

Asia Initiative for Tax Transparency

In 2021, the idea and support for the launch of an Asia Initiative on tax transparency was considered an important milestone to support post-pandemic recovery efforts.

On 14 July 2022, ministers from 13 Asian jurisdictions endorsed the Bali Declaration (Asia Initiative Declaration) as a call to enhance the use of tax transparency for sustainable domestic resource mobilization in the region.

The need for an Asia initiative arose out of numerous reasons that were affecting the trade and economy of Asian countries on a global scale.

• Asian countries’ participation in the multilateral efforts for tax transparency is uneven.
• Only 21 from 34 Asian countries joined the Global Forum and committed to implementing the standard on transparency and exchange of information on request.
• These countries reported additional revenues (tax, interest, penalties) since then.
• Regional initiatives, such as Africa and Latin America Initiatives, have demonstrated their efficiency in promoting and advancing the tax transparency agenda locally.
• The major push for the Asia Initiative to promote transparency and exchange of information was to contribute to a sustainable post-pandemic recovery and stronger cooperation to address tax evasion and other illicit financial flows.
• Indonesia’s 2022 and India’s 2023 G20 Presidencies create momentum.

The Asia Initiative aims to give a regional voice to its members and help them advance the transparency agenda, with the support of the Global Forum, in cooperation with the Asian Development Bank, the Asia Pacific Tax Hub, and other development partners.

Also read: Transparency and Accountability: All you need to know

In news

At the G20 summit, India is pushing for the common reporting standard (CRS) to be expanded to cover non-financial assets such as real estate properties as part of the automatic information exchange among OECD nations.

• The OECD’s Automatic Exchange of Information (AEOI) framework provides for sharing of financial account details among signatory countries to check tax evasion.
• In the meeting of the Asia Initiative of the Global Forum on Transparency and Exchange of Information for Tax Purposes, India said there is a need to broaden the scope of AEOI so that the information could be used not only to check tax evasion but also for other non-tax law enforcing purposes.

Way forward

A worldwide response is necessary to address the global issue of tax evasion and other illicit money flows.

• A series of efficient and well-coordinated multilateral responses to the crisis must include international tax cooperation.
• It is important to expand international tax cooperation in a way that fully considers the various requirements and capabilities of all nations and is universal in approach and scope.

Tax cooperation is crucial for enhancing domestic tax transparency, coordinating worldwide responses, developing peer networks with other jurisdictions, discouraging tax evaders, protecting the domestic revenue base, helping economic development, and bolstering social cohesion.

Read: Tax buoyancy

­-Article written by Swathi Satish