Conservationists should take note of tax dodging and its potential links to biodiversity loss, argues Jonny Hanson, although research is needed to clarify the relationships.
Santa Claus is in trouble. A recent cover of the satirical British magazine, Private Eye saw him being heckled for living offshore and not paying tax in the UK. This irreverent take on Father Christmas may have been in jest, but it underscores the magnitude of the issue: tax dodging is highly political. Especially since the financial crisis of 2007-08, and from the grassroots to the great and the good, it has rarely been out of the public spotlight.
That’s because tax dodging is big business. Christian Aid, an international development NGO, estimates that $160 billion of tax is lost every year by developing countries due to tax dodging by multinational companies (MNCs) alone. This is 50% more than the entire global aid budget.
Tax dodging is an umbrella term that encapsulates both legal tax avoidance and illegal tax evasion. In brief, it occurs through the artificial inflation of corporate profits in tax havens to minimise tax payments elsewhere, often through charging for opaque services such as insurance, finance, management or brand rights. A banana, for example, between being harvested in Latin America and sold in the UK, may travel through up to six tax havens on paper: Bermuda, Ireland, the Isle of Man, Jersey, Luxembourg, the Cayman Islands, and the like.
But is tax dodging a conservation issue? Are there links between it and biodiversity loss? This blog aims to answer some of these questions, looking particularly at the role of MNCs within developing countries.
Tax contributes to biodiversity conservation in two main ways. Firstly, it provides the broader conditions within which conservation can occur, providing revenues for funding public services, redistributing wealth, paying for public representation, and repricing social and environmental harms.
Secondly and more specifically, tax provides financial resources for much of the apparatus of conservation, be that protected area and law enforcement staff, research programmes, or wildlife stewardship schemes. Granted, well-resourced private organisations can complement state-led conservation in certain instances, especially where conservation management bodies or protected areas are neglected. However, the scales and resources necessary for effective conservation – be they across landscapes or national boundaries – are such that a functioning and effective state is also vital.
If follows then that the opposite is also true, particularly in the Global South, with its often weak and underfundedconservation institutions. Poorly governed nation states that are unstable and unequal, and that are haemorrhaging tax revenues to MNCs, are less likely to be effective at or able to adequately fund conservation. Two examples may serve to illustrate this connection.
The first is a paper by Manfred Lenzen and colleagues which examines the links between global commodity trade and biodiversity loss. They found that international trade was directly linked to 30% of species threats globally. Exporting countries where threats to biodiversity are greatest include such diverse places as Indonesia, Madagascar and Papua New Guinea. On the other hand, importing countries with the most trade links to these threats are the likes of the USA, Japan, Germany and the UK, all economic powerhouses home to many MNCs.
The obvious question is: might there be a correlation between those countries where exports and biodiversity threats are highest and those where most tax is dodged by MNCs? In other words, are the biggest exporters of biodiversity also among the biggest exporters of dodged tax, in proportion to their economic size? Lenzen and colleagues do not investigate this, but it is, after all, MNCs that dominate and orchestrate global trade in many products. If this connection exists, neither the natural capital, nor the financial capital which results from its extraction, are being retained for the benefit of the original country, to the detriment of people and nature. Further analysis is needed.
The second example relates to a closely linked phenomenon: corruption. Bob Smith and colleagues wrote in 2003 about the relationships between governance and biodiversity loss, mainly using Transparency International’s Corruption Perception Index as a barometer of corruption. They found that better governance scores were correlated with increasing elephant and black rhino populations across the relevant African states.
Again, this suggests some questions: are these population trends also correlated with tax that is evaded or avoided? And are the effects on conservation of money leaking from an economy due to corruption similar to the effects of money leaking due to tax dodging? Countries losing the most rhinos and elephants may also be losing the most tax, proportionate to the size of their economies. Based on Christian Aid figures, between 2005 and 2007 alone, the twelve African countries with black rhino populations lost an estimated £1.725 billion in tax revenue from bilateral trade mispricing between them, and the US and EU27.
But is it reasonable to assume that conservation outcomes will improve if tax income increases? There are several reasons for caution.
Firstly, there is the issue of power dynamics between government departments. Departments responsible for wildlife management, conservation or national parks are often lower down the political food chain than those responsible for finance, health, infrastructure or defence. More tax retained may therefore not automatically mean more revenue trickling down to already strained conservation budgets.
Secondly, tackling tax dodging is only one part of the equation. Even with more tax retained, a host of other governance issues, such as transparency and accountability, could all limit conservation effectiveness.
Thirdly, and closely connected to the other two, is the issue of society’s connection to conservation. A more equal, prosperous and stable society, which is brought about, in part, by tax-funded services, repricing, redistribution and representation, may not automatically equate to greater conservation outcomes, even if support for and knowledge of biodiversity increases. In fact, as individuals’ wealth increases so do their consumption levels and with it their impacts on biodiversity, facilitated by globalised trade and the MNCs that underpin it. This is conservation’s paradox.
There are more questions raised here than answers given. It is clear that there are likely to be relationships between tax dodging, biodiversity loss and conservation, but we don’t know precisely what they are or how they work. The issue urgently needs careful research. The solution to this dearth of information is also part of a broader challenge for 21st century conservation, namely to more fully understand and address the workings of the world economy in relation to biodiversity loss. Tackling these issues is vital for humanity’s sake, for nature’s sake, and for conservation. It’s time we not only traced the tax but also how tax dodging affects the natural world on which we all depend.
Jonny Hanson is a PhD candidate in the Department of Geography, University of Cambridge. He previously worked for Christian Aid.