Most governments in Asia are now under severe fund crunches, and it causes reduced state spending on social welfare measures that are targeted to the poor. However, big corporations actually benefited from the states’ patronage in many ways, particularly, from huge tax concessions. Asia has the lowest average corporate tax rate at 19.8%. With the assistance and the full cooperation of the ruling elites, the big corporations were advancing their capital and profit accumulation, while intensifying labor exploitation. They have the bounden duty to pay more taxes than any other section of the people in the society.
In the US, Donald Trump argues that lowering corporate tax rates would foster growth. Such claims are utterly false and it is well proven in the past five years that no growth happened due to cuts in corporate taxes. But, such arguments are vehemently promoted in Asian countries also.
Countries having serious economic crises resulting in peoples’ unrest and turmoil, such as Bangladesh, have actually reduced the corporate income tax rate. In 2022 Bangladesh had a corporate tax rate at 30% and in 2023 it was reduced to 27.5%. In Singapore, it is 17%.
South Asian countries are facing many financial challenges. Governments in this region have, on average, the debt of 86% of GDP in 2022. And in some countries, such as Bhutan, Pakistan and Sri Lanka, the growth has been negative or near zero. They have to increase their expenditure when natural disasters occur, since the region is vulnerable to natural calamities due to intense climate change. In spite of the financial challenges, in most South Asian nations corporate tax rates are generally within the 23.1% average. This means economic loot of the big corporations and the multinational corporations in the poor Asian economies is very high.
While poor people are suffering from livelihood issues, the governments do not hesitate to shift the burden of financial crisis on the poor. In many Asian countries, the indirect taxes that were collected mainly from the middle classes and lower income groups were hiked. For instance, in Singapore and Malaysia, consumption taxes were increased. Singapore raised its good and services tax (GST) from 8% to 9%. Malaysia increased its sales and services tax by 2 percentage points, to 8%.
More than 140 countries have committed to impose a global tax agreement to ensure multinational companies pay a 15% minimum rate of tax. But many economists are skeptical about the positive outcome of this measure. Considering the power and influence of the big corporations over the ruling elites, it is doubtful that this measure would curb tax avoidance and increase the tax revenues of the Asian nations. The neoliberal policies followed by these countries inherently create advantages for the big corporations. So, the nation states should change their tax policies, keeping in mind the welfare of the vast masses of the working people and liberate themselves from the neoliberal paradigm.
It is a myth that tax cuts on corporate profits would necessarily boost investment. If the corporates believed that the prospect of future profits are unclear and uncertain, they would not venture for new investments. However, the reductions in taxes boost the profits of corporates on their already invested capital. Workers would never benefit from corporate tax cuts, since there would not be any substantial increase in employment and wages.
The inefficiency in tax collections on the part of tax collecting institutions and the tax evasion of corporations are some of the normal malpractices, not only in the Asian region, but across the globe. In Indonesia, the the existence of so-called “shadow economy” showed the failure to collect taxes properly; the illegal economy represented about 26% of Indonesia’s total economy, or about $336 billion in 2023.
It is to be noted here that, in 2023, the report by a group of economists led by Nobel laureate Thomas Piketty asked the governments to impose a global progressive wealth tax between 1.5 to 3 percent on centimillionaires (ultra rich with a net worth of at least $100 million) to generate $295 billion each year. In Asia, it would generate $91 billion. The economists believed that the generated revenue through such a rate of wealth tax could close a huge climate finance gap. The governments have not responded to this proposal.
Economic inequality in Asia is increasing alarmingly. The economic equality had actually reduced between 1950 and 1980.For instance, in 1980, the share of the top 1% of the population in national income was about 6%, and it is now about 22%. In the neoliberal era, the economic gap between the rich and poor is widening, since large sections of the population have not benefited from the economic growth. So,Social and economic justice would prevail if the governments impose reasonable taxes on big corporations in a determined manner.
N. Gunasekaran is a political activist and writer based in Chennai, India.
From The Progressive Populist, November 15, 2024
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