Taxes, trade, transparency and the development agenda
That G-8 Tax pact
AS the Jamaican Government moved last week to strengthen its tax compliance machinery, leaders of the world's major economies agreed on new measures to clampdown on money launderers, illegal tax evaders and corporate tax avoiders. The events are connected.
The Portia Simpson Miller Administration, despite strenuous protestations from the Opposition Jamaica Labour Party (JLP), Wednesday night passed a bill in the House of Representatives to amend the Revenue Administration Act. Among other things, this will make it easier for the authorities to go after non-compliant taxpayers and facilitate a more effective exchange of information with Jamaica's treaty partners under the various double taxation agreements.
The move, part of the conditionalities of the agreement with the International Monetary Fund (IMF), came as the G-8 leaders (UK, US, Germany, France, Italy, Russia, Canada and Japan) ended their summit in Northern Ireland asserting that their governments agreed to give each other automatic access to information on their residents' tax affairs.
They will also require 'shell companies' — often used to exploit tax loopholes and invest money anonymously — to identify their effective owners. The measures, a communiqué said, are designed to combat illegal evasion of taxes, as well as legal tax avoidance by large corporations that make use of loopholes and tax havens.
With the G-8 and most governments across the world facing budget woes in the wake of the financial crisis, it is not surprising that they are moving to collect more from their citizen-taxpayers, including those operating outside the domestic geographical space.
Summit host, Prime Minister David Cameron of Britain, led the initiative on fairer taxes as part of what he called a "Three Ts Agenda" for growth and development — the other two being greater transparency and more trade.
Mr Cameron said, "We can build international tax systems that make it easier for developing countries to collect the taxes they are due. We can ensure our extractive companies are accountable and transparent in their dealings. And we can do more to promote trade in Africa." The sentiments are spot on; the issue will be in the details of implementation.
So if the G-8 countries can, in fact, achieve a global 'joined-up' tax regime, then the interests of developed and developing countries could be jointly served: A fairer tax system and developing countries having resources for development instead of reliance on foreign aid, which is increasingly in short supply.
However, it seems to me that Finance Minister Dr Peter Phillips and his colleagues across the globe, especially those in the African, Caribbean and Pacific (ACP) grouping, must collaborate to ensure that developing countries get their fair share of the global tax pot and that increased flows to the rich countries are not at the expense of taxes due in the host/developing countries.
Unconscionable outflows from Africa
An equally controversial issue is who gets what from the exploitation of extractive industries, especially in Africa.
Ahead of the summit, Kofi Annan, former United Nations secretary general, urged Mr Cameron to use his chairmanship of the powerful G-8 to ensure that Africa benefits from the extraction of its oil, mineral and other natural resources far more than has been the case up to now.
According to a report from Mr Annan's Africa Progress Panel, 12 of the 25 countries in the world with the highest child mortality rates are resource-rich African countries.
"Africa loses twice as much in illicit financial outflows as it receives in international aid," said Mr Annan, in his foreword to the 120-page report.
"It is unconscionable that some companies, often supported by dishonest officials, are using unethical tax avoidance, transfer pricing and anonymous company ownership to maximise their profits, while millions of Africans go without adequate nutrition, health and education."
As an example of the way in which the full benefits of exploiting natural resources can disappear offshore, the report analyses five mining deals in the Democratic Republic of the Congo signed by the state-owned company Gécamines between 2010 and 2012.
Mineral rights were initially sold to a series of offshore companies — whose end-ownership is unclear — in the British Virgin Islands, and then rapidly sold on at hugely inflated prices, in some cases generating a profit of more than 400 per cent, according to Mr Annan's report.
The loss on these five deals alone was US$1.36 billion, the panel estimates, dwarfing the $698-million spent each year on health and education in the DRC, a country where 17 children in every 100 do not reach their fifth birthday.
The Congo is, of course, remembered as the personal property of King Leopold of colonial Belgium and the subsequent staging ground of multiple proxy wars by agents — foreign and domestic — who have continued to exploit one of Africa's best resourced countries for personal or corporate greed.
Said Mr Cameron: "Oil, gas and mining companies will now have to publish what they pay in every country and for every project they work on."
Will that be enough to halt these unconscionable outflows?
On trade, there was little cheer for developing countries from the G-8. On the contrary, what came out of the summit was the launch of free trade negotiations between the EU and US, which Mr Cameron dubbed "the biggest bilateral trade agreement in history".
There was only a vague reference to helping Africa increase intra-African trade by removing "crazy" bureaucratic hurdles, one of which states that "a trucker taking goods from Cape Town (South Africa) to Kigali (capital and largest city of Rwanda) has to carry up to 1,000 documents". No mention about helping Africa export more to the rich West.
Some critics note that the G-8 wants more of the same medicine that was prescribed in 2008 when the recession hit.
Kevin Watkins, executive director of the Overseas Development Institute, summarised these as: deeper liberalisation, for countries to refrain from protecting their industries, and a bigger role for the private sector in all areas, from agriculture to finance. These are the same policies that have led to many sub-Saharan African countries becoming net importers of food.
In his analysis of the communiqué, Watkins lamented that "there are no commitments on agriculture, despite the damage done by G8 subsidies, particularly to cotton, and the alarm bells sounded by the African, Caribbean and Pacific group of countries on changes to the EU sugar regime. There is no recognition of the need to adapt the approach for countries at different levels of development".
But he gives credit to Mr Cameron and the British Government for pushing for "a development agenda that goes beyond aid — one that links rich-country concerns over tax erosion to the loss of development finance in the poorest countries".
Of course, the agenda is not inspired by altruism. As the British prime minister said: "By 2050, the continent of Africa will have nearly twice the population of China. And a third of the world's youth will live there. We'd be crazy not to be part of this journey with Africa. In short, getting tax, transparency and trade right is good for us and it's vital for developing countries too."
After decades in the global development backwater, Africa is among the fastest-growing regions of the world, and everyone wants to get in on the act. Hopefully, the leaders and peoples of Africa have learnt enough from previous European scrambles for the continent's untold wealth to ensure that this time around, they are not left with the crumbs.