Equality and Panama Papers

The Panama Papers have taken the world by storm with names of those holding offshore companies even hitting Sri Lankan headlines and pushing Government officials to insist they will conduct investigations. But getting to the bottom of tax evasion and ensuring that funds rightly due to the public are not sucked away by the rich would be more complicated and require a stronger local law enforcement mechanism.  

The revelations have shocked the world, dethroned leaders and actually given relevance to a global anti-corruption summit this week to spur new international action in the wake of the Panama Papers leaks. The release of 11.5 million confidential documents from Panamanian law firm Mossack Fonseca also shone a spotlight on the secrecy of Britain’s overseas tax havens and Prime Minister David Cameron along with US President Barrack Obama has promised to take action. But critics are already insisting the proposed measures are too piecemeal to be effective. 

Britain will introduce a public register on who ultimately benefits from British-registered companies - so-called beneficial ownership – next month, the first G20 and EU nation to do so. But the regulations does not cover Britain’s overseas territories including the British Virgin Islands, in fact they are not even expected to attend the global anti-corruption summit. More than 113,000 out of the 210,000 companies exposed in the Panama Papers were registered in the British Virgin Islands.

President Barack Obama is calling on Congress to give federal investigators greater ability to investigate corruption and money laundering, to address gaps in financial transparency exposed by the Panama Papers. But the move has been criticised as too weak amidst continued flak that the Obama administration’s previous deregulation worsened tax avoidance. This accusation comes from none other than the anonymous whistleblower who released the Panama Papers to the International Consortium of Investigative Journalists (ICIJ). In a searing critique of widespread wealth and income inequality, the 1,800-word missive decries “America’s broken campaign finance system” and denounces capitalism as “economic slavery.” ‘John Doe’ also assured law enforcement authorities that while the ICIJ will not cooperate with police, he would do so to actually achieve results that are beneficial for the public. For Sri Lanka, the messages are far-reaching because successive Governments have failed to strengthen or implement laws that will stop local tax avoidance. In fact even now over 80% of taxes are indirect, putting less responsibility on high income earners to declare and pay their taxes. In fact the irresponsibility and corruption of the Government has made it acceptable to evade taxes and this is the grossest irresponsibility perpetuated by politicians. Like in many other countries, lawmakers are also lobbied to delay or weaken new tax laws, resulting in Sri Lanka managing to consistently have high income inequality despite registering respectable overall economic growth. According to the Department of Census and Statistic’s Household Income and Expenditure Survey or HIES for 2012-13, poverty levels have been pretty much higher than the national average. The notable outliers are Mannar with a poverty level of 20.1%, Mullaitivu 28.8%, Kilinochchi 12.7%, Batticaloa 19.4%, Badulla 12.3%, Moneragala 20.8% and Ratnapura 10.4%. Out of the 25 districts, 16 had poverty levels above the national average of 6.5% which had been determined at that level by the extremely low level of poverty in Colombo District at 1.4%. Such data along with Sri Lanka’s high Gini Coefficient proves inequality is an ongoing battle for the public.