Tax and Aid (6)

There is little doubt that governments will have to play a major role in alleviating the world’s problems, from climate change to famine. Of course, nonprofits, foundations, and more recently, social enterprises are also major players. However, all of these organizations depend on world governments, be it funding, other forms of financial support, or policy, to survive and succeed. Social enterprises in particular, being businesses, need government support in the form of laws and policies to survive in an open market. Richard Brooks, in his article, Tax and aid: To trade with loaded dice, from November 29^th in the Guardian, discusses how large multinational corporations can inhibit governments, particularly those of very poor countries, from making a significant impact on these social issues.

He uses SABMiller as an example to highlight multinational tax avoidance, especially in poor countries: The SABMiller brewery located in Ghana only paid 0.3% of its revenue back as tax from 2007 to 2010. The company is using loopholes in local and international laws and creative financing arrangements to avoid paying taxes. In the country, corporate taxes form a significant amount of revenue for the government. Obviously, by avoiding these taxes, SABMiller is creating a significant negative effect on the governments operating income. Such tax avoidance is repeated by other multinationals throughout the world in both developing as well as developed countries. Obviously, this could be a huge source of revenue for governments, who could put the money to good use in helping their people. Specifically for poor nations, this would allow them to reply less on foreign aid, which considering the current economic climate and budget tightening, is likely to decrease.

In terms of social enterprise, money lost from tax avoidance could actually go to promoting social businesses whether it is direct funding, or other financial support mechanisms. Obviously, intelligent policies and laws are still needed, but closing tax loopholes and preventing the offshoring of funds could promote assistance to social enterprises and social causes in general. All that is needed is the political will, which sadly, is really lacking. Do you think political will and capital could be generated if there was more of a focus towards tax avoidance being a social issue? At the moment, it is described by opponents as a way to expand government, and by proponents as the corporate world being negligent. Additionally, do you think poor governments could go about collecting taxes without scaring off these businesses, without help from developed nations (where it seems there is a lack of political will)?

Decreasing Taxes to Spur Social Innovation

The articles this week highlighted the importance of finding ways to fund social innovation and enterprise. The "funding gap," as discussed in the article by Michael Chertok, Jeff Hamaoui, and Eliot Jamison, could be ameliorated by leveraging government power. The government determines tax regulations and policies, and one way in which it could potentially mitigate this funding gap is by lowering taxes on corporations. The government often does not have the money that the private sector has for investment. Innovation is high-risk, and it may not seem fair to have all taxpayers bear the burden of these risks. Moreover, because lots of money is involved in innovation, private investors must choose projects that they feel are likely to succeed. This fact may lead to the creation of more successful social innovations that can spur similar projects. Moreover, private investors have the ability to work with bottom-up approaches in ways that the government cannot. These private investors can look for solutions that are relevant in their communities as opposed to the government telling them which policies to abide by.

Despite some of the positives that come out of decreased taxes for corporations, can mechanisms be put in place to ensure that they follow through with projects that are socially conscious? Are these mechanisms even needed in the first place?