Sealing The flood gates:
Addressing Tax Revenue Leakages:
Alvin S. Mosioma
Coordinator- Tax Justice Network- Africa
Presentation Structure
1. Why Tax Matters?
2. Key Challenges and Impact:
a.
b.
Illicit Flows
Harmful Tax Competition
3. Policy recommendations
4. Ongoing Policy processes
a.
b.
Government Level
CSOs Level
5. Conclusions.
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Introduction
Tax matters for:
‘
• Raising revenue: funding to deliver the services
citizens need
• Redistribution: to address poverty and inequality
• Representation: building accountability of
governments and reclaiming policy space
• Repricing: limiting public ‘bads’, encouraging public
‘goods’
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Background
 Taxation is the most sustainable source
of development finance, but African tax
systems still do not raise enough
revenue to meaningfully reduce
poverty:
Tax to GDP ratio
Sub-Saharan Africa (avg)
16%
OECD
35%
Tanzania
14.7%
Challenges
• Illicit Flows:
• Vast revenues being siphoned out of African countries
through illicit capital flight:
• GFI (2009) - Over the period 1970-2008, Africa lost US $854
billion in cumulative capital flight – enough to not only wipe
out the region’s total outstanding external debt but leave
US$ 600 Billion for poverty alleviation and economic growth.
• Ndikumana and Boyce (2008) estimated net capital flight of
USD 420 billion (in 2004 dollars) from 40 African countries for
the period from 1970 to 2004.
• Tanzania’s share accumulated to USD6.6billion in the period
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Illicit outflows from Africa
1970-2008
Corruption of
public officials:
$15-24 billion
Commercial tax evasion:
$300 - $520 billion
Criminal proceeds:
$150 – $280 billion
Aid: $50 - $80 billion
INFLOWS
OUTFLOWS
Illicit Flows
Case of MOPANI -Mining
• the increase of certain operating costs were inexplicable ;
• - Mopani has been carrying losses forward for 10 years and
therefore wasn’t subject to corporate tax, whereas these costs
should have been « materially lower » ;
• - There were serious inconsistencies in the production volumes
declared by Mopani
• - Mopani was selling copper and cobalt for a consequently lower
price than the London Metal Exchange (LME) rate, to its related
company Glencore, registered in Zug, Switzerland, that has one of
the most attractive tax regime in the world ;
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Illicit Flows
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Illicit Flows
SabMiller Report:
“SABMiller conducts its tax affairs behind
a veil of secrecy. The company and its
subsidiaries siphon money away from
African countries and into tax havens in
Europe, where the tax rates are far
lower. SABMiller is playing the system
to avoid paying its fair share of tax in
developing countries.” Action Aid
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Tax Havenry
The study carried out by TJN in 2008
examining companies using tax havens
found out that 99% of European quoted
companies, 97% the largest quoted
companies in the UK, and 83% of the
largest US quoted companies operated
subsidiaries in Tax havens.
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Piping Profits
• A study by PWYP Norway found that combined
the ten most powerful Extractive Industry
giants own 6,038 separate companies. 2,083 or
34.5% of these subsidiaries are incorporated in
Secrecy Jurisdictions – places where among
many other advantages for companies requiring
secrecy, company accounts and beneficial
ownership details are not publicly available.
• Barrick Gold a major Player in Tanzania has 115
subsidiaries with many of them registered in
Tax Havens.
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Harmful Tax Competition
Rationale for Tax Incentives:
Attract FDI which will in turn:
- Create Jobs
- Facilitate forward and backward inkages to domestic
economy
- Enable technology transfer
- encourage investment in specific under-served
sectors/areas
- Generate revenue through PAYE
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Harmful Tax
Competition
Tax Justice Network-Africa Study: shows that
$2.8 billion is lost each year due to tax
incentives in the four East Africa Community
(EAC) members Kenya, Uganda, Tanzania and
Rwanda.
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Harmful Tax Competition
• Tanzania lost as much as US$ 1.23 billion in
2008 – amounting to 6% of GDP
Kenya loses as much as US$ 1.1 billion a year.
This would amount to around 3.1% of GDP.
Uganda loses as much as 2% of GDP per year,
amounting to around US$ 272 million in
2009/10. (twice the amount of Uganda’s
Healthcare Budget)
Rwanda US$ 156 million in 2008 and (US$ 234
million) in 2009. These were the equivalent of
3.6% of GDP in 2008 and 4.7% of GDP in 2009
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Harmful Tax Competition
• result in a loss of current and future tax revenue
• create differences in effective tax rates and thus
distortions between activities that are subsidised and
those that are not
• could require large administrative resources
• could result in rent-seeking and other undesirable
activities
• be a particularly ineffective way of promoting
investment.
• could attract mainly footloose firms
• can be outside the budget and non-transparent.
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Impact: IFF & HTC
• Revenue Loss
• Aggravates Inequality
• Increase Debt Burden and hinders
intergenerational equity
• Limits Policy Space
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Policy Recommendations
• Increase Transparency through Country
by country Reporting
• Enhanced international on cooperation
tax matters through Automatic Exchange
of Tax information
• Development of Code of Conduct against
harmful Tax competition
• Implementation of annual Tax
expenditure analysis
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Positive
Developments
• ATAF
• Panel of experts on Illicit flows
• EAC regional Tax Harmonisation process&
code of conduct against HTC
• CSOs:
- Establishments of national tax plattform
- Emergency of credible research on Tax
justice.
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Conclusions
“It is a contradiction to support
increased development assistance, yet
turn a blind eye to actions by
multinationals and others that
undermine the tax base of a developing
country.” Trevor Manuel
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End
Thank You!! ASANTE SANA
Alvin Mosioma
Coordinator
Email: mosioma@taxjustice.net
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