Tax evasion costs African governments an estimated $38.4 billion per year – more than half of what governments in sub-Saharan Africa spend on health care, Oxfam said, according to a VoiceOfAmerica report.
African countries lose about 2 percent of their gross domestic product annually because of what Oxfam calls a “broken tax system” that allows multinational corporations to avoid paying taxes in the African countries where they actually do business, the report said.
Oxfam is an international confederation of 17 organizations working in approximately 90 countries worldwide to find solutions to poverty and related injustice around the world.
The confederation wants world leaders meeting at the G20 summit in St. Petersburg later this week to rewrite tax laws that currently allow companies to underpay taxes owed to African countries, the report said.
“That’s money they could be spending on health care or education. And it is rich companies, big multi-national companies, that are sucking this money out of their economies,” says Emma Seery, head of Oxfam’s Development Finance and Public Services.
Much of this lost revenue is due to a practice known as “profit shifting,” in which companies carry out their work in developing countries where the cost of operating a business is generally low, then register their earnings elsewhere in non-tax jurisdictions, Seery said.
“For instance, there are tax rates in the Netherlands which are very low, and often companies only pay a small amount of tax when they actually should being paying the tax, in say, Zambia or Burkina Faso,” she said. “And they can also move money or shift their economic activity on paper into tax havens, which are shrouded in secrecy and places where we are not able to see any information about who pays what tax and whether they are paying the right amount.”
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ActionAid, an international development agency, accused South African beer maker SABMiller of depriving African countries of substantial tax income through aggressive tax management policies, according to an earlier report in Independent Online.
The report questioned why trademarks for many of SABMiller’s iconic African beers including Castle were registered and owned 5,592 miles away in Rotterdam.
The report alleged that SABMiller was shifting profit from its subsidiaries in developing countries to places where income was subject to a lower tax rate. This was done through royalties, management fees, procurement fees for purchase of raw materials and interest payments.
SABMiller said its tax practices are appropriate and compliant, according to Independent Online.
Oxfam says the 19 countries plus representatives of the European Union who meet periodically as the G20, have the power to work with the International Monetary Fund and the Organization for Economic Cooperation and Development to close loopholes in global tax laws that make this kind of tax evasion possible.
G20 finance ministers endorsed a plan to cut down on corporate tax evasion in July and are expected to discuss the issue at this week’s summit in St. Petersburg.
Oxfam said developing countries, including those in Africa, are excluded from negotiations on global tax law reform at the G20, but need to have a seat at the table, according to VoiceOfAmerica.