T

he UN Committee on Economic, Social and Cultural Rights (ESCR) has released its General Comment No. 24. This recent authoritative interpretation of human rights obligations of the state in the context of business activities is a significant development since the UN Guiding Principles on Business and Human Rights were adopted in 2011.

Many issues are addressed in the comment, including trade and investment, business incentives, supply chain, natural resources contracts and privatization. But one of the progressive comments that is in keeping with current global affairs is related to the unfair taxation system.

The committee highlights two main opinions regarding taxation a system. First, enforcing progressive taxation schemes is encouraged to maximize a mobilization of resources for human rights fulfillment.

Second, the practice of tax competition by imposing a minimum corporation tax rate, providing room for and permissive rules to tax evasion, tax avoidance and excessive protection to bank secrecy is not only inconsistent with the responsibility of states to develop international cooperation to fulfill human rights, but also undermines the ability of a state to mobilize resources to realize economic, social and cultural rights.

Regarding tax competition, the committee affirms that “lowering the rates of corporate taxes with a sole view to attracting investors encourages a race to the bottom that ultimately undermines the ability of all states to mobilize resources domestically to realize the covenant rights.”

In addition, the committee’s comment also underlines that even if countries choose not to raise taxes on corporations, and instead amply fund public services through other forms of taxation, their actions impact on the ability of other states to raise a tax.

By this reason, therefore, the obligation of states to address the adverse impact of an unfair taxation system moves beyond its traditional domestic jurisdiction. In other words, the states have an extraterritorial obligation to respect, protect and fulfill the covenant, as previously suggested by the Maastricht Principles.

In the absence of an international remedy mechanism for tax abuse, this development shows a significant role and contribution of the UN Committee of ESCR in combating tax abuse.

Previously, UN involvement in seeking interpretation for the implementation of the covenant resulted in a final study on illicit financial flows, human rights and the 2030 Agenda for Sustainable Development of the Independent Expert on the effects of foreign debt and other related international financial obligations of states on the full enjoyment of all human rights, particularly economic, social and cultural rights released in Jan. 15, 2016.

In the same year, the UN Committee on the CEDAW and the UN Committee on ESCR both affirmed that the bank secrecy laws and lax corporate reporting standards of Switzerland and the United Kingdom were inconsistent with their human rights duties under international treaties.

So what are the implications of the latest committee’s general comment for Indonesia and other states party to the covenant?

As a developing country that is reliant on corporate tax, of course, Indonesia should benefit from this development. For a long time, Indonesia has lost revenue and the opportunity to maximize its ability to fund its development projects because many of Indonesia’s richest park their wealth offshore.

The first implication should be linked to a dispute between tax justice advocates and the authorities over the central question of whether tax competition is justified or not. Historically, despite no evidence of the effectiveness of minimum corporate tax in boosting economic growth and investment, such policies continue to exist.

The latest General Comment of the UN Committee on ESCR, therefore, may end the debate with its assertive interpretation. Countries need to cease offering discretionary and excessive tax incentives, including tax holidays and exemptions. Moreover, they can develop cooperation to set more level corporate tax rates.

Another implication is that before formulating a specific policy related to taxation, a government and tax authority should take this comment into account. Indonesia also has a duty to revoke its existing tax policy that offers excessive privileges for corporations.

The committee’s comment encourages countries like Indonesia to review their tax incentive policies, including the current provision of a tax holiday. Such policies should be in line with this UN treaty body’s commentary.

Last but not least, as the race to the bottom is considered a human rights violation, Indonesia’s tax policy must be considered as an object for human rights scrutiny. The National Commission on Human Rights, which historically has remained distant from discourse on taxation, should express its concern.

Its traditional concern about the implementation of economic, social and cultural rights now have a new field and ammunition. It can take the same measures, for instance, by incorporating the tax justice agenda into the most recent National Action Plan on business and human rights.

Through such a step, we can move forward and make the issue of tax justice a common agenda. So let us see how the country’s main champion of human rights will respond to this development.
_______________________

The writer is the founder of the Lokataru law and human rights office and analyst at the Indonesian Tax Justice Forum. The opinions expressed are his own.