For­eign tax avoid­ance leaves Africa poorer

The Sunday Independent - - LEADER -

THE RE­CENT ex­posé by the In­ter­na­tional Con­sor­tium of In­ves­tiga­tive Jour­nal­ists might as well be called the UN of Tax Avoiders. It is a mesh of lines con­nect­ing mil­lions of dots – all with one thing in com­mon: links to for­eign com­pa­nies or en­ti­ties cre­ated to avoid tax with the help of pro­fes­sional ser­vices ex­perts.

The con­cept of tax avoid­ance, which these pro­fes­sion­als elo­quently dis­tin­guish from tax eva­sion, must be re­fash­ioned. It is per­fectly le­gal, the ex­perts say, but that does not cut it any longer.

Pierre Moscovici, the Euro­pean com­mis­sioner for eco­nomic and fi­nan­cial af­fairs, seems to agree, judg­ing by his tweet: “Time to com­plete the EU’s anti-tax eva­sion tool­box with swift de­ci­sions.”

His col­league, Eva Joly, took it fur­ther: “If all this is ‘le­gal’, then it is nec­es­sary to change the laws.”

To use a South African­ism, we can be grate­ful to who­ever “touched the de­vel­oped world on their tax rev­enue stu­dio”; it looks like that long over­due change is about to kick in.

Africa has been de­nied its right­ful dues un­der this pre­text.

This is not the first spot­light on tax avoid­ance, in­clud­ing the re­cent High Panel on Il­licit Fi­nan­cial Flows from Africa.

In 2011, the Joint AU Com­mis­sion/ UN’s Eco­nomic Com­mis­sion for Africa cre­ated the panel to stem the flows, which were es­ti­mated to be no less than $50 bil­lion a year, at its Con­fer­ence of African Min­is­ters of Fi­nance, Plan­ning and Eco­nomic De­vel­op­ment.

The panel leader, for­mer pres­i­dent Thabo Mbeki, said the fig­ure mainly com­prised the pro­ceeds of tax avoid­ance.

Pro­fes­sional ser­vices firms op­er­ate vi­brant busi­nesses un­der names like trans­fer pric­ing, which help multi­na­tion­als domi­ciled in rich coun­tries to siphon the bulk of their busi­ness rev­enue from poorer ju­ris­dic­tions to their home coun­tries via tax havens – ex­actly the types used by those fin­gered in the Par­adise Pa­pers.

It is not sur­pris­ing that one of the peo­ple named, ace For­mula One rac­ing driver Lewis Hamil­ton, was able to use shell com­pa­nies in the Bri­tish Vir­gin Is­lands (BVI), the Isle of Man and Guernsey to es­chew a £3.3 mil­lion VAT bill in 2013. This was for his im­ported £16.5m Bom­bardier air­craft, brought into Eng­land from Canada.

The Guardian re­ports that an “Isle of Man cus­toms hosted a pri­vate meet­ing with an EY (ac­count­ing firm) ad­viser dur­ing which de­tails of the struc­ture were dis­cussed, and agreed to fast-track the pa­per­work”.

Du­ties and levies are com­monly used by coun­tries to pro­tect their lo­cal in­dus­tries from cheaper im­ports.

They make the im­ports too ex­pen­sive, thus co­erc­ing con­sumers to buy lo­cal. When such high-value im­ports as pri­vate jets are al­lowed into other ju­ris­dic­tions with­out due tax be­ing paid, so­cial ser­vices take a knock.

Hamil­ton is not alone. The same re­ports some­what ex­on­er­ate him, claim­ing he might not have been aware. Oth­ers, how­ever, deny cul­pa­bil­ity. One such is Nige­rian Cen­tral Bank gov­er­nor God­win Eme­fiele. Nige­rian on­line news­pa­per Pre­mium Times re­ports that Eme­fiele “jointly owned the iden­ti­fied shell com­pa­nies with Zenith Bank chair­man, Jim Ovia”. The god­fa­ther of Nige­rian bank­ing, Ovia was “Eme­fiele’s boss at Zenith” and with whom “he ap­pears to main­tain close busi­ness ties”.

While pro­fes­sion­als and com­men­ta­tors ex­cuse this kind of con­duct, poor coun­tries of the world – read African – are get­ting the raw deal.

Since they are “twice as de­pen­dent on cor­po­rate tax rev­enues as rich coun­tries”, ac­cord­ing to Ox­fam tax ad­viser Su­sana Ruiz, let us un­der­stand why the bolder among African lead­ers, for ex­am­ple, Pres­i­dent John Magu­fuli of Tan­za­nia, will slap multi­na­tion­als like Aca­cia with $300m fines, while tak­ing a 16% stake in their com­pany.

Magu­fuli ar­gues that Aca­cia should have paid all that to the peo­ple of Tan­za­nia over the two decades of its op­er­a­tions.

This tax-avoid­ance web is too laced with riches and power.

Par­adise Pa­pers trace some links to US Com­merce Sec­re­tary Wil­bur Ross, Prince Charles and even Queen El­iz­a­beth of Eng­land.

Since we all can­not re­sist the al­lure of oc­ca­sional tax sav­ings through off­shore shell com­pa­nies, per­haps only the likes of Magu­fuli can save us for the greater good.

Kgo­moeswana is the au­thor of Africa is Open for Busi­ness, me­dia com­men­ta­tor and pub­lic speaker on African busi­ness af­fairs. Twit­ter Han­dle: @Vic­trAfrica

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