African revenue agencies in dogfight
It was an American statesman, Benjamin Franklin, a gentleman of reputedly many talents, who is credited with the widely spoken remark, ‘in this world nothing can be said to be certain, except death and taxes.’
Technically, none of us lives forever and paying taxes is a part of life. Dodging them however, is probably one of the world’s most favourite pastimes and yet without this money, governments can do little in terms of providing public services.
It is also often those who shout the loudest about poor services or lack of some public good, who tend to want nothing to do with the tax collector. This puts an inappropriate burden on others. Paradoxically tax avoidance is not a crime.
Recently, the Uganda Revenue Authority (URA) hosted counterparts acoss the continent in Kampala to launch the African Tax Administration Forum. Central to their ambitions is plugging the loopholes that allow big and small companies; foreign and domestic from dodging to pay their proper taxes. That applies to wealthy individuals as well.
No sustainable economy can function without good infrastructure. This is not confined to just roads, and hospitals, but a host of other things that government is expected to provide, including security of person and property.
Earlier this year, UK-based ActionAid published a report that concluded tax avoidance by large corporations means poor countries lose billions of dollars in revenue.
According to the United Nations Conference on Trade and Development (UNCTAD), businesses avoid paying $200 billion annually in taxes by channeling their overseas’ investments through offshore financial hubs.
The failure of major global corporations such as Amazon, Starbucks, Boots and Vodafone to pay their proper tax dues in the United Kingdom caused fury yet again, but little has changed. Businesses of this size can afford the best lawyers and consultants.
The corporations claim they are doing nothing illegal. They are simply following accountancy advice on how to reduce their tax liabilities and increase their profits.
These same multinational coporations also make mince meat out of Africa’s tax laws. Across the world, businesses and individuals have made dodging taxes a respectable enterprise. In Africa it is perhaps more unfortunate because of our reliance on foreign tax payers for development funding.
Recently, one well known global consultancy was accused of advising big business, including UK firms, on how to avoid paying tax in some of Africa’s poorest countries.
But African governments must also take some blame. It is true that competition to attract foreign investment is fierce. The question then is at what cost are governments willing to pay to get these enterprises. Mind you all the guarnatees come from the government? The investor can easily change their mind and disappear off into the horizon.
The race to offer the best line of tax incentives and tax holidays, is hampering many government’s ability to provide the same physical infrastructure investors urgently need to develop their enterprises.
For the East African Community which has designs of becoming a Common Market, this is particularly self-defeating if no coordination is involved.
The basic tax on profits made by big companies is called corporation tax. Many countries continue to entice large multinational corporations to operate within their borders by offering low corporation tax rates and this has resulted in a gradual, but steady decline in global rates of corporation tax in the last 15 years.
For African governments, this is a dogfight they cannot afford to lose. Tax to GDP ratios are not climbing fast enough, even as population numbers soar upwards. Surely then, this is no time for holidays.
