Paradise Papers, Gorakhpur

Revenue lost due to corporate tax avoidance could fund universal healthcare

4 min readNov 10, 2017 01:13 AM IST First published on: Nov 10, 2017 at 01:13 AM IST

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The intention to raise public expenditure to strengthen India’s healthcare have been repeated in the in many official plans with little or no action. (File photo/Express)

The headlines in The Indian Express on November 5 were about the Paradise Papers, the new set of documents on offshore finances being investigated in collaboration with the International Consortium of Investigative Journalists (ICIJ) and Suddeutsche Zeitung, Munich. These documents show a link to 714 Indian names, including prominent individuals and corporates, and raise questions on the legitimacy of some of these offshore transactions and beneficiaries.

Also on November 5, was a report titled “30 children die in 48 hours at Gorakhpur’s BRD Hospital, six due to encephalitis.” Of the 30 children, 15 were younger than one month. Child deaths at BRD Medical College have come back to haunt the Uttar Pradesh government three months after a similar incident occurred.

While the two stories seem to be unrelated, they are intimately linked. The broken health system is something all Indians are familiar with. In August, even those not easily moved were shocked to hear about an impoverished man in Odisha who carried his wife’s body for 12 km after the hospital where she died allegedly failed to provide an ambulance. Stories of hospitals full of rats are common.

A major reason for India’s health care crisis is that it spends only about 1.3 per cent of its GDP on health when the global average is 6 per cent. K. Sujatha Rao, former Union Health Secretary, in her book, Do We Care? India’s Health System, says that with the current level of under-funding for health, we will fail to meet the National Health Policy 2017 targets. One of the reasons she gives for the underfunding is not collecting enough taxes.

The High Level Expert Group (HLEG) on universal health coverage (UHC) submitted its report in November 2011. It estimated that financing the proposed UHC system will require expenditure on health to be stepped up to at least 2.5 per cent of GDP by 2017 and 3 per cent by 2022. The National Health Policy 2017 also intends on gradually increasing public expenditure to 2.5 per cent by 2025.

The intention to raise public expenditure to strengthen India’s healthcare have been repeated in the in many official plans with little or no action. Indeed, it will probably not be possible to do so until India’s tax to GDP ratio — which at 1.7 per cent is one of the lowest in the world — is raised. This could be done if India had the political will to stop hemorrhaging its tax revenues due to the legal and illegal ways employed by the corporate sector.

Country-by-country estimates of revenue loss from international corporate tax avoidance are available from several studies. On the conservative side, revenue losses due to tax avoidance are around $500 billion globally (Alex Cobham and Petr Jansky, March 2017). In addition, the studies show that the intensity of losses is substantially greater in low and lower middle-income countries. So at one end we have countries such as Guyana and Chad, that are likely to be losing a staggering 7 per cent of GDP to tax avoidance and at the other end we have the UK losing only 0.02 per cent.

India falls somewhere in between. It is estimated to be losing 2.34 per cent of GDP due to corporate tax avoidance. This is significantly more than the 1.3 per cent of GDP that it currently spends on healthcare and more than enough to help it reach its target of 2.5-3.0 per cent to achieve universal health coverage.

Tax havens are at the heart of the inequality crisis, enabling corporations and wealthy individuals to dodge paying their fair share. This prevents countries from funding vital public services and combating poverty and inequality, with especially damaging effects for developing countries like India. The Indian government needs to urgently take steps to investigate these 714 names as well as work with other governments to prevent more losses in tax revenues.

The corporate sector needs to stop discussing whether these tax minimising schemes are legal or illegal. Schemes that are causing revenue losses that could prevent two children younger than five dying every minute in India are at least highly unethical.