Transcript South Africa - TAX JUSTICE ACADEMY

Tax and Inequality
Savior Mwambwa
Policy & Advocacy Manager
Tax Justice Network –Africa
International Tax Justice Academy
10th -14th August 2015
Kenya
Inequality
Social inequality is the existence of unequal
opportunities and rewards for different social
positions or statuses within a group or society.
Africa- A hopeless continent?
‘’Africa is still the
hopeless
continent……… a
"scar on the
conscience of the
world," –hosts of
G8 summit
GleneaglesScotland, 2005
2000 Edition
“Africa Rising” ( 2010)
TJN-A ‘s work on inequality
Africa Rising? Rising Inequalities and the
essential role of taxation in sub Saharan
countries – TJN-A & CA report, July 2014
What this report covers:
• Income inequality trends
• Tax revenue trends
– National and international
– Tax types
– Tax reforms
• In 8 countries – Ghana, Kenya, Malawi,
Nigeria, Sierra Leone, South Africa, Zambia,
Zimbabwe
• Special focus on Kenya and South Africa
Why do the report?
• Africa as the subject of a new ‘growth/optimism
story’…..but little attention to income inequality trends
"It cannot be said often enough, that overall progress remains
too slow and too uneven; that too many Africans remain
caught in downward spirals of poverty, insecurity and
marginalisation; that too few people benefit from the
continent's growth trend and rising geo-strategic importance;
that too much of Africa's enormous resource wealth remains
in the hands of narrow elites and, increasingly, foreign
investors without being turned into tangible benefits for its
people."
Kofi Annan, Chair of the Africa Progress Panel
Why do the report?
• Increased interest in tax reform in Africa
• Little analysis of tax systems and inequality in
Africa
• Particular impact of illicit financial flows (IFFs)
and tax dodging on the continent
Key Findings
• Inequality rising in 6 out of the 8 countries
• Sierra Leone: only country showing decline
(2003-2011 data)
• Zimbabwe: no data
• Richer getting richer + poor getting smaller
shares of income
• IFFs high and rising
At the same time……..
• Limited direct taxation of income and wealth
• HNWI tax evasion major, upcoming issue (eg.
Kenya and South Africa)
• Big tax losses due to generous tax incentives
for companies
• Governments continually forced to tax the
poor (eg. Kenya, Malawi, Zimbabwe….)
• Struggles and limitations to reform
Income inequality trend in Nigeria
70
60
50
48.83
46.5
44.95
Gini
42.93
40
38.68
30
20
1986
1992
1996
2004
2010
Income inequality trend in Ghana
70
60
50
Gini
42.76
40.75
40
38.13
35.35
35.99
30
20
1988
1989
1992
1998
2006
Other countries to note:
• Kenya: income inequality rising since 1994
• Zambia: rising since 2003
– now at highest ever level (57%)
– analysis shows poverty should have fallen but is
increasing because of rises in inequality
South Africa
• National survey data:
–
–
–
–
63% in 1993
70% in 2008
10% poorest have 0.2% of income
10% richest have 51% of income
Data shows super-rich driving increase at top
• Target in national development plan “an embarrassment” –
60%
“South Africa does not have a poverty problem! We have a
wealth problem!”
Budget Justice Coalition
Underestimating inequality….
•
•
•
•
Consumption surveys vs. income surveys
Property + overall assets not included
Earnings from capital offshore not measured
TJN:
– “both wealth and inequality are being
dramatically underestimated to a very significant
degree in every study in every country”
Inequality and taxation
• CA and TJN-A position:
– Those who have less should pay less; those who
have more should pay more
– Redistributive potential of tax system is of central
importance (especially in highly unequal societies
in SSA)
– Provides resources for public spending which
should also specially target poor and marginalised
in effort to reduce inequalities
Tax revenue trends in SSA
• 15%
18% of GDP (1980-2005)
OR
• 13%
14% of GDP (1980-2005) without
natural resource revenue
• 18%
20% of GDP (2000-2009)
Illicit financial flows and taxation
• IFFs from Africa highest in world
– US$50bn: average annual outflow between 2000 and 2008
– Nigeria and South Africa: leaders in terms of volume of regional
outflows.
– IFFs as % of GDP in GFI rankings in 2013: Nigeria (8th), Zambia
(9th), Zimbabwe (13th), Malawi (14th), and Sierra Leone (15th)
– £9.4bn customer deposits in banks in Jersey from Africa (vs.
£3bn from China)
• IFFs from Africa rising
• IFFs = Tax loss: inability of African tax authorities to tax
income and wealth offshore is key part of the picture
Impact of IFFs on tax policy
• So much income and wealth generated in
Africa is offshore and cannot be taxed
• Policymakers ignore taxation of income and
wealth, and focus on easier indirect taxation
• African tax systems cannot be progressive –
and used to tackle income inequality – in this
context.
IFFs and trade mispricing
• Trade mispricing (commercial tax dodging) is
know to be the biggest element of IFFs
• Christian Aid data on this:
– Ghana trade mispricing amounts to tax loss of
27% of corporate income tax
– Sierra Leone: tax loss of 15% of corporate income
tax
Some highlights
• High levels of inequalities
• Huge challenges in ensuring tax system is
progressive and effective in redistributing
wealth.
• KRA is continually failing to meet its revenue
targets.
• Only 100 HNWI are registered in Kenya out of
an estimated potential 40,000.
What do you think?
Africa is not hopeless!!
but
But rising only for the few
Key Recommendations
• Government should focus on raising tax revenue, with tax
equity at the centre of the tax reform and revenue raising
strategy. (focussing on CIT, PIT, property taxes and other
wealth taxes, such as capital gains taxes), so as to increase tax
revenues in an equitable manner.
• Focusing on the enforcement of PIT and CIT, with a particular
focus on HNWIs and on growing sectors such as
telecommunications, banking, construction, finance and
tourism.
• Investigating the distributional consequences of indirect taxes
such as VAT and ensuring that any reforms which increase
rates, change exemptions, or bring in new taxes are fully
analysed for their impact on the tax burden borne by poor
people.
•
Requiring companies to provide statutory accounts and
creating central registers where these accounts will be
accessible by the public.
• Establish public registers of the beneficial owners of
companies, foundations and trusts.
• Increase fiscal transparency at the national level, ensuring
citizens have regular access to simple, straightforward
information about tax collection and compliance and how
revenue is spent.
Tax incentives
•
Abolish discretionary tax incentives as well as the
discretionary powers vested in individual government officials
that enable the granting of such incentives.
• Prioritise an increase in social spending as a key part of fiscal
reforms and making a clear link between tax reforms and
revenue-raising strategies and the public budget allocations.
Regional Cooperation
• Governments in sub-Saharan African should coordinate their
tax policies and improve their access to information across
countries as well as push for global reforms. Measures should
include:
• Pursue regional cooperation in tax matters to work towards
tax harmonisation within trading blocs in an effort to
challenge tax competition and the race to the bottom.
• Call for a global system for automatic information exchange,
cooperate with each other to develop the capacities required
to use the information exchanged effectively as a means to
tackle tax evasion.
• Signing the African Agreement on Mutual Assistance in Tax
Matters and supporting ATAF in promoting effective
information exchange for tax purposes across the continent.
• Working closely with the High Level Panel on Illicit Financial
Flows from Africa to develop and implement a set of
continental guidelines on these issues and ensuring there is a
unified African voice to advocate for the global-level reforms
outlined below.
‘If our goal is to slow migration, then
the best way to do so is to work for a
more equitable global system. But
slowing the migration is an odd goal,
if the real problem is global
inequality’. – Aviva Chomsky
What you can do!