A/67/302 attract foreign direct investment through tax incentives and other tax abatements for foreign investors and low or non-existent trade and capital gains taxes. 11 Tax competition reduces tax revenue in developing States and weakens their ability to raise sufficient funds to finance health. 12 In some developing countries, revenue lost from tax incentives amounted to nearly twice the budget for health. 13 High-income States have also experienced diminished tax revenue from taxation of capital income as a result of tax liberalization in developing States. 14 Multinational corporations have shifted their assets offshore to take advantage of tax havens and engaged in transfer pricing in order to claim profits in low-tax jurisdictions and avoid paying higher taxes in the States in which they are domiciled. 15 20. States should ensure that tax liberalization policies resulting from international tax competition do not result in reduced public funding for health. However, lower tax revenue and diminished tax bases resulting from tax abatements for foreign investors and low or non-existent trade and capital gains taxes are likely to weaken States’ ability to raise adequate funds for health, as required by the right to health. States and international financial institutions should therefore avoid promoting tax competition through free-trade agreements, investment treaties and conditional lending if such instruments and policies threaten to reduce the availability of taxbased funding for health in developing States. 21. International tax competition has placed the burden of taxation in many States on consumption and income or wage-based taxes rather than taxes on business profits and capital income. 16 Income and wage-based taxes, however, are difficult to collect in States with large informal sectors, including most of the developing world. These States incur significant administrative costs associated with tax collection from the informal sector, experience high levels of tax evasion and face difficulties in maximizing income tax bases. 17 It is estimated, however, that taxing the informal sector could increase tax revenue by 35 to 55 per cent in some States. 18 Innovative approaches to tax collection from the informal sector, including through State cooperation with informal workers’ associations, have been successful in some instances and hold promise for increasing tax bases in States with large informal sectors.18 In order to ensure the availability of adequate, equitable and sustainable funding for health, as required by the right to health, States should not be left, as a result of tax liberalization policies, to rely primarily on tax revenue from sectors that are difficult to regulate. However, in order to promote equity in health funding through taxation, and given the size of potential revenue, States should make efforts __________________ 11 12 13 14 15 16 17 18 12-46101 International Confederation of Free Trade Unions, Having Their Cake and Eating It Too: The Big Corporate Tax Break (Brussels, 2006), pp. 16-17. Marta Ruiz, Rachel Sharpe and María José Romero, Approaches and Impacts IFI tax policy in developing countries, available from: http://eurodad.org/?p=4564. Tax Justice Network and ActionAid International, Tax competition in East Africa: a race to the bottom? (April 2012), p. 12. See Howard Wachtel, “Tax Distortion in the Global Economy”, Paper presented at the Global Crisis Seminar, Transnational Institute (Amsterdam, February 2002). Ibid. Allison Christians, “Fair Taxation as a Basic Human Right”, International Review of Constitutionalism, University of Wisconsin Legal Studies Research Paper No. 1066 (November 2009), p. 20. International Tax Compact, Addressing tax evasion and tax avoidance in developing countries (Eschborn, Germany, December 2010). Ibid. 9