FSI is a ranking system that categorizes states or nations depending on secrecy and quantity of offshore fiscal operations. As a non-political tool, FSI is used to understand international fiscal secrecy, tax havens, and capital flight. The index was established late in 2015 to help bring light into the most hidden secrets of financial operations. In this post, the focus is all about FSI (Financial secrecy index).
A closer look at the dark financial secrets
Approximately $21-$32 trillion of personal financial wealth globally is hidden, without taxation, in secret areas around the world (secrecy jurisdiction). Secrecy jurisdiction is term usually applied interchangeably with Tax Havens to get illegitimate financial flows.
Annually, it is estimated that about $1-$1.6 trillion worth of finances flow to tax havens. This dwarfs the US4135 billion that is used for global aid. For the last four and half decades, Africa has lost more than $1 trillion in illegitimate cash flow. When you compare this with the overall consolidated debt that is less than $200 billion, the picture comes out even more clearly. Notably, while Africa is a major creditor, the huge resources bases have been in the hands of handful elite who take the wealth and hide in offshore accounts.
This does not mean that the rich nations do not suffer the same fate. Top countries such as Greece, Portugal, and Italy have all suffered the same problem that brought them to their knees. Notably, this problem of tax evasion has over time burgeoned into a huge industry with bank, accounting firms, law establishments, and expert providers who focus only on assisting clients avoid tax.
Notably, this problem goes far past tax avoidance. The world of most corrupt and market distortion has become the order of the day with efforts being made to paint them white. A criminogenic brooding station has been established where fraud, escaping from fiscal legislations, and tax cheating are conceived. The insiders can get multiple methods of extracting more finances, with little worry for societies and driving highest levels of impunity.
Significance of FSI
To identify financial secrecy providers, the FSI brings out the traditional thoughts about tax havens. Top providers of financial secrecy that store the loots are in many instances not small islands like it was always thought. Rather, they are some of the biggest and wealthiest states in the world. In fact, some of them are members of OECD.
The implication of financial secrecy for the international politics is enormous. It is because of this that any effort to address the problem is thwarted even before any significance results can be realized. Its impact on global financial slowdown has however jolted world leaders to rethink the problem.
The global leaders are now focusing on addressing the issue of tax havens and are in the race to establish mechanisms to address the issue. The G20 and OECD are now developing new strategies that target to enhance sharing of information and ensuring that no multinational escapes paying taxes. By making the playing field even, local businesses will not be left with bigger tax burdens because there will be no place to hide any more. However, these efforts are yet to bear any results.
The best strategy is taking the issue head on. The offshore secrecy has to be taken head on and the entire infrastructure that has been established over time demolished completely.