Can Ecuador End Politicians’ Use of Tax Havens?

Ecuador will hold a referendum to prevent all politicians and public servants in the country from keeping money in offshore accounts. The referendum is intended to help mitigate problems of tax avoidance, which the Ecuadorian government says cuts significantly into its revenue and hinders its ability to provide public goods for the benefit of the people. The referendum is scheduled to occur in the upcoming 2017 elections.

If a “yes” vote prevails, then all politicians and public servants who currently hold funds in offshore accounts will be given one year to repatriate all of their capital. Should they fail to do so within the given timeframe, they will be removed from office.

Additionally, Ecuador is calling on world governments to wage a political battle against the use of tax havens, calling on the United Nations to establish an intergovernmental body to address the issue. Ecuador is the incoming president of the G-77 group of nations. In this new role, it is likely that the Latin American country will seek to advance its anti-tax haven agenda, seeking to develop improved global governance tax structures.

To put an end to tax havens, to have these critical resources for our development, we have to wage a political battle, It’s time for the U.N. to take a much stronger stance against tax dodging in general, tax havens in particular and in favor of the broad issue of tax justice,” Ecuador’s Foreign Minister Guillaume Long said following a United Nations General Assembly meeting at the end of September. “The consequences of this are huge in terms of positioning the fight against a practice that is really shameful for humanity in the 20th century. Imagine the economic progress that could have been made, how much poverty could have been reduced, how we could have reduced inequality if taxes had been paid and this money would have been invested in our country.”

It is estimated that trillions of dollars of tax revenue are lost because of offshore tax havens, money that governments could have been otherwise spent to benefit their citizens on social welfare, healthcare, education, and infrastructure programs. In Ecuador, it is estimated that a staggering 30 percent of the country’s gross domestic product is kept from government oversight clandestinely in offshore tax havens.

President Correa, a trained economist who has made it a mission to address tax havens, echoed Long’s point. “In Latin America, 32 million people could escape poverty if this capital, hidden in tax havens, were subject to income tax that corresponds to it. All this not only generates corruption, but also deepens inequality and social differences,” the president said, adding that developing countries like Ecuador are much more susceptible to the negative effects of tax havens. “The fight against tax havens should transcend all ideology. It is time to move from speeches to action.”

Whether Ecuador’s attempts to end the use of tax havens will be successful remains debatable. Domestically, even if the referendum does pass, it may prove difficult in practical terms for the government to identify who has money in offshore accounts. The government’s calls for comprehensive international efforts to address the issue raise even more questions. It is unlikely that there is enough political will globally for the creation of an intergovernmental body to regulate tax havens.

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