Philanthropy’s tax blind spot

 

Michael Jarvis and Savior Mwambwa

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This is the moment to shake up the world of tax. Will funders rally to the moment?

Philanthropy has paid little attention to influencing tax systems. That is a missed opportunity given the importance of tax in enabling countries to deliver on development priorities and tackle inequality. With a generational shift in tax reform underway worldwide now is the moment to engage, mobilize smart funding and have a major impact.

Tax systems really matter whether you care about health, education or the environment.

Issues that progressive philanthropy cares about require investment at a scale beyond private giving. Government foreign aid can help but is set to decline from a record high in 2020 as Covid pressures decline. Countries will need to find alternative revenues to pay for education, climate responses, elderly care and so much more. That means raising taxes. Taxes provide the platform for social spending and will be essential if ‘build back better’ is not to remain just a slogan in much of the world

Taxation is also an instrument to influence behaviours for societal goals, such as carbon taxes or tobacco taxes. Even more importantly, a country’s tax system reflects the social contract between government and population. It affects trust within society and in turn democratic health or regime stability. The pandemic has only further revealed and exacerbated inequality in societies rich and poor – not least how little wealthy corporations and individuals are paying in taxes. A badly designed tax system will reinforce inequity. A good one will reduce it. Building fairer, more transparent and effective tax systems will help address a pervasive trust deficit.

For those who care about development, there are many entry points to thinking about tax as this system map prepared by members of the Transparency and Accountability Initiative (TAI) funder collaborative reveals.

Yet, philanthropies have generally shied away from funding on tax issues. Why is that?

Tax as an issue area does not tug on the heartstrings compared to health or education or the environment. So, even while essential to progress on those areas, the pathway is indirect and maybe one step too far for some funders. In addition, few philanthropies have staff who know tax issues well (which can soon get highly technical); there is a need to build up their internal capacity to make informed choices.

Of course, we should also recognize that taxation is a topic that some philanthropists might be wary of given that their own wealth accumulation might reflect current or past tax minimization approaches. Charitable donations are themselves often motivated in part by resulting tax benefits. 

A badly designed tax system will reinforce inequity. A good one will reduce it. Building fairer, more transparent and effective tax systems will help address a pervasive trust deficit.

There is a track record of funding, but it must be scaled and with explicit intention. TAI members prioritized tax as a shared priority area in their 2017-19 strategy and the number of tax-related grants they made almost doubled during that period (from 45 to 84.) The Bill and Melinda Gates Foundation now has a small tax-related portfolio and Laudes Foundation is also considering scaling its engagement. However, it is still a small number of philanthropic funders actively funding tax justice and related issues. We are talking tens of millions of USD in active grants in total. A far cry from what corporate tax lobbyists might spend in one jurisdiction.

High net worth individuals and corporations pay a lot for tax advice, so, should appreciate the value of underwriting similar advice for those typically with little to no voice in tax policy and implementation, particularly groups in the global south.

The good news is that there are fundable opportunities where philanthropy can make an immediate impact.

Bilateral and multilateral aid on tax has been increasing since 2016 when commitments were made to double spending on ‘domestic resource mobilisation’ via the Addis Tax Initiative. That goes almost exclusively to governments for technical assistance. The gap for private philanthropy to fill is in providing much needed support to non-state actors on tax. As the Overseas Development Institute found, civic actors have important roles to play in assuring good outcomes from tax systems in national and subnational contexts. Governments are increasingly recognizing the constructive role that civil society can play in influencing tax policy and administration from subnational to national to regional and global levels.

Philanthropy can fund:

  • Advocacy – There is a growing body of evidence showing the value of civil society-led advocacy in pushing for tax equity and increased revenues. In Uganda, 43 civil society groups came together to force a reduction in regressive mobile money taxes, while in the United States, CSOs in Minnesota, Maine, and Massachusetts successfully advocated for ‘millionaire taxes’, campaigning on the ideas of declining revenues and deteriorating public service.
  • Research – Academic and civil society experts are taking advantage of the increasing availability of data to make the case for more effective tax systems. See the power of Tax Justice Network’s Tax Haven Index as a mobilizing tool, the rigorous studies of the International Centre for Tax and Development drawing attention to neglected policy aspects, such as gender impacts of tax systems, and the open research tools that provoke electoral debates, such as Gabriel Zucman’s model for a US wealth tax.
  • Coalition building – Lasting reform is built upon mobilizing cross-sections of society. We have seen this work in strengthening inclusion on the public spending side (including amid the Covid-19 pandemic). We know the same is possible in the tax field. In Mexico, CSO Fundar partnered with the autonomous government office responsible for government transparency to highlight abuse of amnesty programs giving generous tax relief to celebrities and large corporations with no clear need. This led to the President signing a constitutional decree forbidding future use of the programs this past year. In the Philippines, civil society, media and officials came together to overcome powerful lobbies and secure tobacco and alcohol taxes in 2012.
  • Strategic litigation – recourse to the courts is a vital tool in securing greater tax compliance and better tax deals. Sometimes civil society challenge the government, sometimes partner with them. Tax Justice Network Africa’s successful challenge to a Kenya-Mauritius tax treaty (that could have enabled tax dodging) set a precedent to challenge tax policy decisions in Kenya but also in other countries in Africa. In the UK Tax Watch filed submissions to the Supreme Court in support of the revenue authority seeking taxes, penalties and fines of over $1 billion from GE.  Both approaches need resourcing.

Underpinning all is a need for institution building. Many countries do not have a single civil society organization dedicated explicitly to tax justice. That is a major missed opportunity, especially when a little can go a long way.

Funders should provide flexible general operating grants that allow organizations and coalitions to be both strategic and opportunistic. For example, Ford Foundation’s award of $2.5m of BUILD grants to Tax Justice Network was a gamechanger for the organization, which has seen a clear increase in its influence on international tax policy debates. What seemed utopian a decade-plus ago, are now mainstream policy suggestions, if not realities, such as automatic exchange of tax information between countries, transparent country by country reporting of taxes paid, disclosure of beneficial owners of corporate entities.

The moment to act is now. Public attention is high.

At the international level, after years of stalling, 130 countries have signed on to a new deal for cross-border taxation that puts a floor on corporate tax payments (minimizing a race to the bottom) and increases opportunities to tax digital firms. Within individual country contexts tax debates are integral to concepts of ‘build back better’. Even the Financial Times editorial board is calling for the US Administration to seize the chance of reform for a more progressive tax system.

Philanthropic investment can help shape these reforms to assure that they deliver on their promise. New grantmaking will increase the chances that countries raise revenues in ways that restore, not worsen social cohesion, and can be deployed for vital public goods while fighting against some of the most pressing developmental challenges of our time: corruption and capital flight.

We need to see many more philanthropic funders exploring the connections to tax for existing portfolios, more investment in tax justice and accountability programming.

Many government funders have committed to doubling their support for tax programming. It’s past time for philanthropic funders to do the same. TAI members have shown it’s possible. The top 50 US givers alone gave away $24.7 billion in 2020. Even shifting one one-hundredth of that amount to support tax programming would be a game-changer.

Michael Jarvis is Executive Director at the Transparency and Accountability Initiative (TAI), and Savior Mwambwa is a Program Officer for the Economic Justice Program and Soros Economic Development Fund at Open Society Foundations.


Comments (3)

Giedre Lideikyte Huber

In addition, you might be also interested in our project "Taxation and Philanthropy" which you can find here: https://www.unige.ch/conference-philanthropy-taxation/


Giedre Lideikyte Huber

That you for this article. Tax issues in philanthropy have not been receiving a lot of attention, but lately the situation seems to be changing. You might in particular be interested in the 2020 OECD Report "Taxation and philanthropy" that has been issued in collaboration with the Geneva Centre for Philanhtropy, University of Geneva. Largely based on the data gathered through country questionnaire, the Report provides a detailed review of the tax treatment of philanthropic entities and philanthropic giving in 40 OECD members and participating countries and examines the normative justification of preferential tax treatment for philanthropy, its domestic and cross-border tax treatment. You can access the Report here: https://www.oecd.org/ctp/taxation-and-philanthropy-df434a77-en.htm


Alex Jacobs

Thanks for this brilliant article. Your analysis is spot on. And it's only made more urgent by the recent revelations in the Pandora papers - that show how tax practices drive inequality & social harm. There's also such a powerful link to responding to the climate crisis: tax systems need to fund & encourage the just transition, rather than potentially undermine it. At the Joffe Trust, which I lead, we're actively working on these issues from a UK perspective. We support work on tax justice and to strengthen integrity in the UK's financial system, recognising that it has international effects. We'd love to hear from anyone interested in these issues. There's such scope for relatively modest grants to make a massive impact.


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