draining development.pdf - Khazar University

Tax Havens and Illicit Flows 351Note that these issues are largely independent of the additional problemof the smaller per capita tax base in developing countries because oflower per capita GDP, while the problems associated with large informalsectors are primarily a result, rather than a cause, of these other issues(see the discussion on compliance below).There have, as yet, been no serious attempts to estimate the cost ofsecrecy jurisdictions in terms of forgone redistribution, repricing, orrepresentation. Useful attempts have, however, been made to address therevenue effects.The systemic impact of tax havens on development was first addressednot by researchers at international financial institutions, but by a nongovernmentalorganization, which relied on academics and haven insidersto build its analysis. The report, by Oxfam (2000), included an estimatethat developing countries were losing around US$50 billion a yearto tax havens. This estimate draws on global figures for foreign directinvestment and the stock of capital flight, combining these with estimatedreturns to investment and interest income, along with estimatedtax rates: the sum is around US$35 billion in untaxed foreign directinvestment and US$15 billion in untaxed personal income.Subsequent work by the Tax Justice Network (TJN 2005) suggests thatthe global revenue loss to the untaxed savings incomes of individualsmay be as much as US$255 billion annually, and Cobham (2005b) notesthat proportions equivalent to the shares of world GDP would imply aloss to developing countries of around US$50 billion a year. As Fuest andRiedel (2009) clarify, this would imply a potential tax haven total ofUS$85 billion a year, which is close to the total of aid received for theperiod in question. A subsequent Oxfam study puts the estimated losson individual income alone at US$64 billion–US$124 billion (Oxfam2009). More recently, Ann Hollingshead (2010) has estimated thatUS$98 billion to US$106 billion is the developing-country tax loss onsome form of the trade mispricing that Christian Aid assesses and notesthat her Global Financial Integrity study therefore well supports thework of Christian Aid.This is the extent, currently, of attempts to quantify the revenue damagedone by havens to developing countries. Two main criticisms can bemade. First, the assumptions involved are necessarily nontrivial. Globalestimates of asset return, for example, are open to criticism because