View
214
Download
0
Category
Preview:
Citation preview
The Effect of the Use of International Tax Systems on Developing Countries: An African
Perspective
Tax Justice, Poverty and Development
19/11/09 Attiya Waris, University of Nairobi, Kenya 2
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
19/11/09 Attiya Waris, University of Nairobi, Kenya 4
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.
19/11/09 Attiya Waris, University of Nairobi, Kenya 5
Tax revenue and tax expenditure
State Resources
International Donors (Aid and Loans)
Government Business
Taxation
International Trade
State Expenditure
Infrastructure
Health
Education
Social Security
Defence
Housing
Judiciary
Parliament
Executive
19/11/09 Attiya Waris, University of Nairobi, Kenya 6
2. Avoiding and Evading TaxesTwo 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)
19/11/09 Attiya Waris, University of Nairobi, Kenya 8
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)
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 156
• Kenya 50
19/11/09 Attiya Waris, University of Nairobi, Kenya 11
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
19/11/09 Attiya Waris, University of Nairobi, Kenya 12
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
19/11/09 Attiya Waris, University of Nairobi, Kenya 13
3. State Failure to Provide Benefits
Poor policies
Foreign imposed policies (WB, IMF)
Loan Conditionalities
No independent contextualised policy development
Globalisation and trade liberalisation
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
11 Nepal: 0.78 % of world's poor 13 Colombia: 0.76 % of world's poor 14 Kenya: 0.72 % of world's poor 15 Mali: 0.71 % of world's poor 16 Madagascar: 0.68 % of world's poor 17 Burkina Faso: 0.62 % of world's poor 18 Mozambique: 0.61 % of world's poor 18 Tanzania: 0.61 % of world's poor 20 Niger: 0.59 % of world's poor
19/11/09 Attiya Waris, University of Nairobi, Kenya 17
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
19/11/09 Attiya Waris, University of Nairobi, Kenya 18
3. EPAs
Under EPAs
Region Loss of Customs Revenue
SADC 19%
Cariforum 14%
LDCs (8% of total revenue ) 38%
19/11/09 Attiya Waris, University of Nairobi, Kenya 19
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,”
19/11/09 Attiya Waris, University of Nairobi, Kenya 20
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
19/11/09 Attiya Waris, University of Nairobi, Kenya 21
6. Effects of Tax Havens
Fiscal drain from one state to another
Bloating of economies
Instability of economies
Encouraging corruption/criminal activity
Poverty
19/11/09 Attiya Waris, University of Nairobi, Kenya 22
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
19/11/09 Attiya Waris, University of Nairobi, Kenya 23
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
19/11/09 Attiya Waris, University of Nairobi, Kenya 24
Recommendations
Constitutionalisation of participation
Financial crisis: break the globalisation trend
Develop more regionalism
Selective decoupling of economies
Pay taxes but demand re-distribution
Recommended