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Panama Papers & Tax Legislation, Bringing the mighty into the tax net

Panama Papers and Tax Legislation

In April 2016, the world was shocked by the International Consortium of Investigative Journalists (ICIJ) when it leaked the documents of a wealth management firm Mossack Fonseca. Known to the world as Panama Papers, these documents took the world by storm as they detailed nearly 214,000 offshore entities owned by different powerful rulers of countries in various parts of the world. The documents included the names of politicians, businessmen, artistes and others, directly or indirectly, including the names of Icelandic Prime Minister Sigmundur Davio Gunnlaugsson, British PM David Cameron, Russian President Vladimir Putin’s right-hand man Sergei Roldugin, and the progeny of Pakistan’s Prime Minister Nawaz Sharif.

The Panama Papers have ignited public furore against the loot and plunder of rulers around the world. The leaks have jolted the Western world which now feels compelled to plug the loopholes in taxation systems all through Europe so as to introduce and enforce new laws to curb the money laundering. The campaign for new legislation gained momentum mainly at government and organizational levels; thus the United States, the United Kingdom, the European Union have stood out with their agility in this regard.

US President Barack Obama has expressed a strong resolve to legislate the tax code; British Premier David Cameron also announced to initiate the process of tightening tax laws and launching a crackdown on tax-evaders whereas the EU has come up with many a proposal for tax transparency. The EU also agreed to blacklist a host of tax havens in the European states. The leaks stirred the world in first week of April when it exposed the evil practices of tax-dodging and subsequent money-laundering and the shoring up of wealth in countries considered safe tax havens. Naturally, the leaks invited the world powers to take stern measures for tax legislation.

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Addressing the British Parliament, the British premier pledged to tighten noose against tax-evaders so as to do away with the menacing practice of tax evasion. US President Barack Obama urged the Congress to legislate tax codes more simply and remove lacunae thereof. Similarly, on May 1, with a month into the crisis, Russian President Putin also signed a new taxation bill into law.

In a similar spirit, hundreds of economists around the globe urged the world leaders to take new initiatives for more transparency in taxation systems marked by proper check and balance, urging especially Great Britain to take the lead in this connection.

The European Union has emerged as leading multilateral organization tackling the issue of tax transparency since the Panama quake started jolting the world with its tremors. The 28-member Union proposed enhanced regulations for public tax transparency for multinational companies (MNCs). The aim of the proposals includes bringing the multinational companies, which are operational in the territorial jurisdiction of the European Union, into limelight and avoid blindly imitating the international standards of taxation. According to the proposals, all big companies would have to make their tax and financial data public.

Before the Panama episode, the “Lux Leaks” of November 2014 had also goaded the European Union to curb tax dodging. A Tax Transparency Package was introduced by the European Commission in March 2015 in order to set up a system of automatic exchange of information on advance tax ruling among Member States’ tax administrations. Its principal objective was to tackle corporate tax avoidance. Days after the Panama Leaks, the European Commission came up with the new proposal wherein it vowed to introduce public tax transparency rules for the MNCs. The European Commission had planned to impose a country-by-country reporting for the companies’ activities in the EU states. But, the Panama Papers turned the tide and prompted the alteration of the proposals, which made it obligatory for the MNCs to disclose tax data also in jurisdictions reasoned as tax havens.

Besides, the EU is considering compiling a common blacklist of tax havens. The recent history bears out the fact that each EU member state has its own list of tax havens and the powers to take measures against them lie solely with the decrees of the member states. The new move follows the Panama Leaks that caused new legislation in connection with the problems of tax evasion. The compilation of the common blacklist is scheduled to be tabled by September this year; this move envisages that the EU would impose joint sanctions against the tax havens accordingly.

Consequently, the Panama leaks turned out a blessing in disguise. The developed world has started curbing the evil practices of tax evasion. The results of these legislations will benefit the poor countries as well — a handsome number of investors belong to Third World countries. If tax is levied, the investors belonging to these countries would never prefer to invest abroad. The Panama leaks may be regarded a fresh impetus to the cause of tackling corruption which may put reservations of the masses of the third world countries to rest, subject to the practicality of the legislation.

The United Kingdom stands atop among the countries for many a reason. The immediate cause might be the name of David Cameron — though indirectly — in the Panama Papers, prompting more rigorous demand for fresh legislation. After clarifying his position in the parliament, the British Premier announced later a crackdown on tax evasion. In addition, Queen Elizabeth, in a May 18 address, announced that the new taxation rules would be introduced, especially regarding money laundering. The Queen was unveiling United Kingdom’s new agenda ahead of the Brexit EU referendum.

The referendum on British membership of the EU, which was held on June 23, provides another opportunity for new tax legislation in England; David Cameron has been canvassing for the vote in favour of the UK’s stay  in the EU. With his faded reputation, he could not win public support with only cosmetic measures. To muster political support, it is no less than incumbent on him to set practical measures to translate the plans into reality. For that to happen, the circumstances necessitate new legislation regarding tax.

Unfortunately, Pakistan is still far from taking any initiative in this regard. The worse is that the family of Pakistani prime minister has been named in connection with offshore companies, but the country has failed to raise any voice. Even the negotiations between the opposition parties and the government had hit a snag and it seems highly unlikely that any solid steps would be taken to probe the matter. Indifference of the common masses is deplorable and pathetic, to say the least. Now it seems that it may take Pakistan decades to introduce effective taxation reforms. But, this is the thing which needs to be done in the near future as in this globalized world, Pakistan cannot remain immune, or indifferent, to happenings around it.

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