A/HRC/43/45/Add.1 action.66 The transition from the informal to the formal economy is an important step to achieve sustainable and inclusive development, and to fully realize the human rights of all workers, including the rights to decent work and to social protection.67 C. Illicit financial flows 29. Curbing illicit financial flows is essential for maximizing fiscal space to realize human rights and achieve sustainable development.68 Illicit financial flows may result from a variety of illegal transactions, such as tax fraud, bribery, corruption, drug trafficking, trafficking in persons and other criminal activities. There are no official statistics or data to estimate the origin and the scale of illicit financial flows in the country. However, there are a number of indications that the volume of illicit financial flows may be significant and there is an urgent need to collect accurate and comprehensive data and develop an appropriate policy response to address the issue. 30. A few studies have reported a high rate of tax evasion. Gómez Sabaini and Jiménez, for instance, have observed that a combination of factors, such as the high degree of informality, the fragmented capacity to collect payment of taxes and the low level of tax morale, lead to a high rate of tax evasion, which is a common trend in the region. 69 Enforcing compliance with VAT in particular appears to pose challenges, given the size of the informal economy and the frequent use of fraudulent invoices. 70 The estimated evasion rate for VAT is 29 per cent, which is slightly above the regional average of around 27 per cent.71 It is also worth noting that a think tank, Global Financial Integrity, estimated that the average annual volume of illicit financial flows in the country between 2004 and 2013 was $627 million. However, this is most likely an underestimate, as figures were not available for some of the years during this period.72 31. The so-called “Panama Papers” in 2016 revealed the prevalence of tax evasion through the use of tax havens.73 An investigation by the International Consortium of Investigative Journalists suggested that Bolivian businesspersons and politicians were linked to 127 offshore companies, mainly registered in Panama and the British Virgin Islands.74 Following this revelation, the Plurinational Legislative Assembly established the Joint Special Commission for the Investigation of the Panama Papers to investigate 11 cases involving Bolivians.75 The Commission found that in 2016, $989 million had been transferred from the country to tax havens, which was equivalent to 2.9 per cent of GDP in the same year.76 This amount reportedly consisted of $662.6 million in tax evasion. 77 66 67 68 69 70 71 72 73 74 75 76 77 ILO, Transition from the Informal to the Formal Economy Recommendation, 2015 (No. 204), preamble. ILO, Women and Men in the Informal Economy, p. 2. See A/HRC/31/61. Juan Carlos Gómez Sabaini and Juan Pablo Jiménez, Tax Structure and Tax Evasion in Latin America (Santiago, ECLAC, 2012), p. 10. See Juan Carlos Zuleta, “Combating corruption in the revenue service: the case of VAT refunds in Bolivia”, Chr. Michelsen Institute, May 2008. See also Roberto Ugarte Quispaya, “Análisis sobre la baja capacidad recaudatoria del IVA en el sector de los pequeños contribuyentes: el caso de Bolivia”, Inter-American Center of Tax Administrations, February 2015 (which finds that the current system of VAT does not suit the country, with its large informal economy). Gómez Sabaini and Jiménez, Tax Structure and Tax Evasion, p. 34. See Dev Kar and Joseph Spanjers, Illicit Financial Flows from Developing Countries: 2004–2013 (Washington, D.C., Global Financial Integrity, 2015). See A/HRC/37/54/Add.2, paras. 33–38. International Consortium of Investigative Journalists, “Panama Papers investigation reveals Bolivia’s offshore connections”, 29 October 2017. La Razón Digital, “Informe sobre paraísos fiscales revela daño de aproximadamente $US 1.000 MM e incluye a Doria Medina”, 11 December 2017. Cámara de Senadores, “Anuncian tratamiento de un proyecto de ley de Lucha Contra el Uso de Paraísos Fiscales”, 31 July 2019. La Razón Digital, “Confirman millonarias transferencias a paraísos fiscales y plantean medidas para contener esta práctica”, 12 December 2017. 11