Africa: Saving money for the continent

Africa: Saving money for the continent

20.07.2015. Third International Conference on Financing and Development took place in Addis Ababa last week from 13th to 16th July 2015. Among the other topics such as the current developmental relations and programs and also plans for the developmental agenda after 2015, tax avoidance and fraud was one of the most important topics. However tax avoidance is only one side of the coin and control of corruption carried out by states and regional actors is equally important.

 

Tax avoidance practice in Africa and fight against it

Problem of tax avoidance and tax fraud practice of international companies in Africa is not a new one. Oxfam, an important international development agency claims that due to the tax avoidance and tax fraud of international companies operating in the countries of Sub-Saharan Africa, around 100 billions of US$ each year is lost. This amount creates half of the amount of money spent by the international community for aid. And according to the AU, this amount of money is also enough to halve the poverty in Sub-Saharan Africa in 2030.

 

This topic has been also debated on various international forums. For example, early in 2013 at the G20 Summit in Moscow, action plan to tackle the problem of tax avoidance was established with the aim to concretize it on the following summit of the group in Brisbane in 2014. The concrete plan has not been published yet. However, positive development could be seen on other forums in the latest months. In June, European Commission presented its action plan for corporate taxation. Among the other provisions of the action plan, the part of increasing transparency is the most important. In this step, European Commission plans to increase the tax transparency not only within the EU member states but also vis-á-vis third countries. According to the European Commission, multinational companies should publicly disclose some information, including Country-by- Country reporting. In June 2015 also G7 countries after the Summit in Germany committed themselves to present a new tax reform leading to more fair tax system in the world. G7 countries also recognized the importance of the cooperation with developing countries and promised to invest in their tax administration capacities.

 

Framework introduced in Addis Ababa

Tax avoidance and tax fraud were identified as the top priorities of the Third International Conference on Financing for Development and in this occasion, the OECD with the cooperation of the UNDP presented a new concrete framework to improve the unfavorable tax situation in Sub-Saharan countries. This new framework is called Tax Inspectors without borders. Under this framework the experts from the external counties will cooperate directly with the local tax officials. The aim of this initiative is to support and strengthen capabilities of the local tax administration as the first step for the prevention of tax avoidance.

 

A way forward

It is very an important step that problem of tax avoidance and tax fraud, which in concrete way damage economics of Sub-Saharan African states has become a discussed topic among the most important international actors. However, the equally important question is a management of the money saved by the tax control.

 

The problem of corruption has been recognized as an important governance problem in Sub-Saharan Africa many years ago, however no major change has happened. Corruption perception index can outline the current situation and its development in Sub-Saharan Africa. In 2004, only two states - Botswana and South Africa placed among the top 50 least corrupt states and 23 countries placed among the 50 worst countries concerning the level of corruption. In 2009, these numbers did not change a lot – Botswana remained among the top 50 countries in the world, South Africa scored worse. Among the worst countries in the world 19 countries from Sub-Saharan Africa could be found. In 2014 Botswana was still among the top 50 countries, 20 countries from Sub-Saharan Africa stayed among the worst countries in the world. Data shows that corruption and nepotism has been a persisting problem of many Sub-Saharan African states and has not improved much in the last 10 years.

 

Control of corruption should be an agenda of internal, regional actors in Sub-Saharan Africa. If external actors and international organization have showed their effort to limit the tax avoidance situation and have prepared a number of framework and concrete steps which can improve the situation, is should be the agenda of regional actors to take care about the management of saved money. African Union expressed this effort some years ago when the Convention on Preventing and Combating Corruption was introduced in 2006. By this convention African Union gained some very concrete and strong tools to control the corruption level in their member states and also criminalize the actors. However, control remains rather limited and no state has been yet punished for it.

 

To make the argument of developmental organization about the tax avoidance right, not only tax control, but also management of sources need to improve. And for now, the later seems bigger, persisting and not enough reflected problem. 

 

Mária Kučerová