Sealing The flood gates: Addressing Tax Revenue Leakages:

1. Sealing The flood gates: Addressing Tax Revenue Leakages: Alvin S. Mosioma Coordinator- Tax Justice Network- Africa

2. Presentation Structure • Why Tax Matters? • Key Challenges and Impact: • Illicit Flows • Harmful Tax Competition • Policy recommendations • Ongoing Policy processes • Government Level • CSOs Level • Conclusions.

3. 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’ ‘

4. Background • Taxation is the most sustainable source of development finance, but African tax systems still do not raise enough revenue to meaningfully reduce poverty:

5. 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

6. Illicit outflows from Africa1970-2008 Commercial tax evasion: $300 - $520 billion Corruption of public officials: $15-24 billion Criminal proceeds: $150 – $280 billion Aid: $50 - $80 billion INFLOWS OUTFLOWS

7. 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 ;

8. Illicit Flows

9. 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

10. 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.

11. 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.

12. 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

13. Harmful Tax Competition Tax Justice Network-Africa Study: shows that $2.8 billion is lost each year due totax incentives in the four East Africa Community (EAC) members Kenya, Uganda, Tanzania and Rwanda.

14. 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

15. 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.

16. Impact: IFF & HTC • Revenue Loss • Aggravates Inequality • Increase Debt Burden and hinders intergenerational equity • Limits Policy Space

17. 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

18. 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.

19. 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

20. End Thank You!! ASANTE SANA Alvin Mosioma Coordinator Email: mosioma@taxjustice.net