Transcript Tax Injustice and Poverty

Tax Justice, Poverty and
Development
The Effect of the Use of International Tax
Systems on Developing Countries: An African
Perspective
An African Approach to:
1.Paying Tax and Receiving Benefits
2.Avoiding and Evading Taxes
3.State Failure to Provide Benefits
4.Tax Havens
5.Advantages of Tax Havens
6.Users of Tax Havens
7.Effects of Tax Havens
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1. Paying Taxes and Receiving
Benefits
The French Declaration on the Rights of Man 1789
13. A common contribution is essential for the maintenance of the
public forces and for the cost of administration. This should be
equitably distributed among all the citizens in proportion to their
means.
14. All the citizens have a right to decide, either personally or by
their representatives, as to the necessity of the public
contribution; to grant this freely; to know to what uses it is put;
and to fix the proportion, the mode of assessment and of
collection and the duration of the taxes.
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Tax revenue and tax expenditure
State Resources
International Donors
(Aid and Loans)
Government Business
Taxation
State Expenditure
Infrastructure
Health
Education
Social Security
Defence
Housing
Judiciary
International Trade
Parliament
Executive
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2. Avoiding and Evading Taxes

Two sets of Accounts (official and unofficial)

Unreported earnings

Goods and services without receipts:
45-50% misreporting by 10% in South America
60% misreporting by 11% in Africa

Payments in foreign jurisdictions

'Gifts'

The informal sector (shadow economy)
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2. How Multinationals avoid and evade
taxes

tax holidays: Ghana 3-10 years in EPZ

Tax incentives/ subsidies: agricultural products

Economic Processing Zones (goods only) :
China’s pledge of 10 billion dollars in concessional loans to
African states
Around 950 Chinese companies have set up operations in
Egyptian free zones, representing a total investment of nearly
300 million dollars (17th November 2009)
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2. How Multinationals avoid and evade
taxes
•
Industrial Processing Zones (goods and services)
•
Use of Tax havens: Mauritius
•
Freedom of Information and Confidential agreements
•
Use of legal loopholes/tax planning/exemptions:
Tanzanite in Tanzania
•
Corruption
2. Comparing FDI v Profits Leaving
Africa
1995-2003
US$ million loss
•
DRC
1,150
•
Nigeria
1,603
•
Botswana
4,678
•
Angola
3,592
•
Cameroon
•
Kenya
156
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2. Case Study: Unilever Case
Arms length pricing
Transfer pricing
Decision: Application of OECD Guidelines
Whether in the absence of specific guidelines from the Kenya
Revenue Authority the OECD (The Organization for Economic
Co-operation and Development) guidelines and the methods
prescribed there under for the calculation of an arm’s length price
are proper basis for the determination of an arm’s length price as
required under section 18() - when the Act provides no
guidelines, other guidelines should be looked at a tax payer is
entitled to demand that his liability to a higher charge should be
made out with reasonable clarity, before he is adversely affected
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2. Impact on African Countries of
Avoidance and Evasion
Less disposable revenue available to states
World Bank’s Stolen Assets Recovery Programme states that cross-border flow of the
proceeds from criminal activities, corruption and tax evasions amounts to between
US$1 trillion to US$1.6 trillion per year worldwide
It places at more than $480 billion the amount leaving Sub-Saharan Africa as capital
flight, with Kenya contributing
Growth of informal unregulated economy (43% of GDP in Africa shadow economy v
16% in OECD countries)
Corrupt leaders US$ 40 billion annually
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3. State Failure to Provide Benefits

Poor policies

Foreign imposed policies (WB, IMF)

Loan Conditionalities


No independent contextualised policy
development
Globalisation and trade liberalisation
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Poverty Share
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(No
data
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1 India: 41.01 % of world's poor
2 China: 22.12 % of world's poor
3 Nigeria: 8.03 % of world's poor
4 Pakistan: 3.86 % of world's poor
5 Bangladesh: 3.49 % of world's poor
6 Brazil: 1.82 % of world's poor
6 Ethiopia: 1.82 % of world's poor
8 Indonesia: 1.49 % of world's poor
9 Mexico: 1.43 % of world's poor
10 Russia: 0.99 % of world's poor
11 Ghana: 0.78 % of world's poor
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Nepal: 0.78 % of world's poor
Colombia: 0.76 % of world's poor
Kenya: 0.72 % of world's poor
Mali: 0.71 % of world's poor
Madagascar: 0.68 % of world's poor
Burkina Faso: 0.62 % of world's poor
Mozambique: 0.61 % of world's poor
Tanzania: 0.61 % of world's poor
Niger: 0.59 % of world's poor
3. Fiscal Dilemmas in Developing
Countries
Globalisation: Debt, Aid and Trade
Regionalism (EAC Draft Common Market Protocol finalised
20/11/09):
Withholding tax 5%
Royalties, Dividends 10%
Corruption
Illicit fund flows
Public Finance
Collection and Distribution
Human Rights and Social Welfare
Participation
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3. EPAs
Under EPAs
Region
Loss of Customs Revenue
SADC
19%
Cariforum
14%
LDCs (8% of total revenue )
38%
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4. Tax Havens


Tax efficiency=denying sovereign governments
their income
Allen Kagina Customs Commissioner Rwanda noted capital
flight, presence of tax havens and the continent’s dependence
on foreign assistance and indebtedness as some of the most
pressing issues of the revenue sector. “Billions of dollars leave
the African continent each year. Between 1961 and 2004,
these outflows are estimated at around 7.6 per cent of the
annual GDP of the region and in effect make African countries
net creditors of donor countries,”
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5. Users of Tax Havens

Ordinary citizens with a certain income level

Scared citizens (unstable state)

Foreigners (expatriat workers)

Tax evaders: Corporations

Criminals (drug dealers)

Corrupt persons
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6. Effects of Tax Havens

Fiscal drain from one state to another

Bloating of economies

Instability of economies

Encouraging corruption/criminal activity

Poverty
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7. What is African civil society saying
Protect the innocent: not our crisis
Ensure current crisis doesn't undermine efforts to address the food, energy, and
climate crises: however their funding is also drying up
Allow poor countries to engage in the regulatory reform process
Enable African countries to engage in the institutional reform process
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8. Recommendations
Support the debt campaign
Asking for more direct income redistribution
schemes from the natural resources.
Strengthening public finances
Accountability, responsibility and transparency
Equity in redistribution
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Recommendations
Constitutionalisation of participation
Financial crisis: break the globalisation trend
Develop more regionalism
Selective decoupling of economies
Pay taxes but demand re-distribution
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