Globalization and Taxation
Globalization and Taxation
Globalization and TaxationFor us to better understand the link between globalization and taxation we must first look at what each means. Globalization is understood to mean the increasing connectivity of the world's businesses. With all of the advances of technology in the past two years, it has helped to speed up the process in making things easier for people to travel and make businesses international. Two factors in the rise of globalization are the rise of telecommunications and the use of the internet. Since satellites started to orbit the planet the communication and other means of its use have sky rocked, making it easy to communicate with others. As all of these businesses have become more connected to other economies, it has also increased the competition between international businesses. Many people believe that the competition between these companies is good, and that way things will develop quicker. But to some, they feel that not all people are available to the same resources, so therefore it is not a fair, connection to the rest of the world. Especially when the companies are smaller, and are not able to globalize as easily. It is also been presented that the increase in economic integration has created the tax burden that is now seen moving from capital to labor. If the rise in this economic integration goes along with the rise of political integration they may just cancel each other out. With all of this new development the "foreign direct investment (FDI) has increased from $2.2 billion in 1970 to $190 billion in 2000. The FDI boom has precipitated tax competition to attract those foreign investments, mainly among developing countries." Globalization also has increased the integration of national capital markets.
Taxation is a way in which the government can finance their expenditures by charging citizens and corporate businesses. Taxation's real reasoning was to be developed to be neutral to all sectors of the economy but now-a-days the government uses it to persuade or depress economic decisions. Taxes are also a way for businesses to give a lot back to the city or state, that they are in. The trade that goes globally is about $1.3 trillion per day, and of this amount, only the cross-border purchases account for two percent of this. The exchange rate speculation, accounts for the remaining 80% of what is received.
In Brazil, the Brazilian Secretariat of Federal Revenue (SRF), has a current tax system that is structured with three bases of taxation; income, consumption and property. Most of their tax revenue collected comes from the income and consumption taxes. Because of this, it is important for us to analyze how globalization can influence the tax bases and the changes taking place in the tax replicas currently used. With the increase of mainly capital and highly skilled workers, it has allowed the tax payers to take advantage of the differences in tax systems. For them their information and help of easy and cheap knowledge has been given to them with the use of the internet.
"The more mobile the tax base, the more susceptible to globalization it is"(13). But with this comes issues where corporations choose a country where their tax liability will be low. It must be known that taxation is an important issue that will influence profits and the competitiveness between businesses. When referring to independent taxation, the more skilled or higher income individual will tend to have more international mobility. These tax payers have more of an option to pick their tax domicile and where they want to spend their money or hold their investments. At the same time, they can spend their money abroad while staying away from paying taxes. Globalization causes this flight of skilled labor which will have a significant impact on the country's taxes. So globalization can generate a negative effect on the equity of the tax system.
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