Preamble- Africa and the poverty and misery dilemma
Africa is still battling the triple challenges of poverty, inequality and de-industrialisation. These challenges combined to stifle her development. Nevertheless, rather than lament, African trade unions have elected to be focused and determined on seeking alternatives to defeat hardship and miseries and contribute to the continent’s structural transformation, especially work to secure resource mobilisation possibilities.
African trade unions believe that tax is one of the ways to harness resources to drive development. They know this because they are tax payers (directly through Pay As You Earn- PAYE and indirectly through sundry consumption charges (Value Added Tax), and through other charges and levies.
One of the demonstrations of African Trade Unions’ resolve to contribute to internal resource generation is the decision they took to engage in the campaign to defeat Illicit Financial Flows (IFF) from Africa and the elimination of unnecessary tax concessions with the view to enhancing chances for the deployment and implementation of social protection provisions for all.
African trade unions shunning lamentation and self-pity: call to action
Precisely in September 2013, African trade unions during the General Council of the African Regional Organisation of the International Trade Union Confederation (ITUC-Africa) in Accra, Ghana decided emphatically through a resolution it adopted to join the global tax justice movement in the fight to radically reduce and ultimately stop global illicit financial flows. A campaign focusing on Africa has since evolved and pushing forward this message though with lots more to be done. Details of the campaign and the demands against Illicit Financial Flows (IFF) are worth reading here, but what is IFFs, how are they perpetrated? Can they be halted?
A simple understanding of Illicit Financial Flows
Illicit Financial Flows (IFF) simply means illegal movements of money or capital from one country to another. In essence, they are monies earned, transferred and spent illegally. These funds typically originate from three sources: commercial tax evasion, trade misinvoicing and abusive transfer pricing1; criminal activities, including the drug trade, human trafficking, illegal arms dealing, and smuggling of contraband; and bribery and theft by corrupt government officials. Africa over the last 50 years has seriously suffered and continues to suffer from IFF, to the point that commentators have argued with evidence, that Africa is a net creditor to the world as against the current narrative of being a net debtor continent. For instance, Global Financial Integrity (GIF) opined that Africa has lost between $859 billion to $1.06 trillion between 1970 through 2008.. Kar and Cartwright-Smith (2010); Kar and Leblanc (2013) made similar assertion, noting that over $1 trillion was lost to the continent in the last 50 years. When these staggering amounts are compared to what Africa needs, say to finance Health care and Education (two vital poverty reducing social services), one will appreciate the assertion of the continent being a net creditor to the world.
The recent report produced by the High Level Panel commissioned by the United Nations Economic Commission for Africa (UNECA) and the African Union (AU) chaired by former South African President, Thambo Mbeki is now the minimum accepted reference of the existence, scale and nature of IFFs in Africa. The report showed that a very conservative, but staggering figure of $50 billion leaves Africa annually through sundry IFF practices.
The report did not just talk about IFFs and how they happen, operate and strive; rather, it made practical suggestions on how African countries can track and identify the flows; reverse and stop these negative flows, as well as repatriate the stolen funds. Some of the recommendations are listed below:
Reforming national, regional and international tax systems and removing counter-productive tax incentives. These will lead to substantially increased budgets for African countries to finance the post-2015 agenda and pay for improved public services including education, health care, clean water and sanitation, housing and transportation, and development initiatives.
African governments commit to review the national network of “double taxation treaties” (sometimes called agreements). On the surface, these treaties aim to ensure that a company does not get taxed twice on the same income. In practice, they often move taxation rights from source countries to residence countries, meaning from African countries to primarily developed countries and tax havens. While double taxation treaties are proposed by richer countries to poorer countries with the pretext that they encourage investment and trade, in practice their main effect is usually to take away taxation rights from developing countries, meaning that those countries receive less tax revenues from companies.
African governments commit to reviewing the tax incentives being offered to multi-national companies. While these are not classified as “illicit flows,” Panel members have identified these incentives as a major additional source of lost revenues – that can easily be reduced by African government action. It is estimated that the money given up globally by governments to corporate income tax incentives alone is $138 billion (source: ActionAid). In the World Bank’s recent Investor Motivation Survey for the East African Community, 93% of investors said that they would have invested regardless of the incentives available. Despite what corporate lobbyists often claim, providing tax incentives to large foreign companies is almost always bad business for African countries.
The staggering outflow of illicit money from Africa is facilitated mostly by a global shadow financial system comprising tax havens, secrecy jurisdictions, disguised corporations, anonymous trust accounts, fake foundations, trade mispricing, and money laundering techniques2. The impacts of these practices had and continue to have harsh and adverse effects on Africa’s social and economic outlook.
IFFs: economic and social effects in and on Africa
The impacts of the structure of IFFs and the funds they leak out of Africa are enormous and profound. Notably, IFFs drain and deplete hard currency reserves; drive up inflation; reduce and diminish tax bases and actual collection; cancel investment; as well as seriously undermine free trade.
Some of the most telling impacts can be felt by those at the bottom of the income scales as IFFs erode resources that could otherwise be used for poverty alleviation and other social programmes and outcomes. These social outcomes could in turn be inputs to drive economic growth. For emphasis, the social scorecards of Africa, which the injection of blocked IFFs funds can help reverse, read like this: Life Expectancy at birth: 54 years compared to 75 years for Europe and 68 for the World; Doctors per 1000 persons: 2.3 for Africa compared to 33.3 for Europe and 11.0 for the World; Under 5 mortality per 1000: 107 for Africa compared to 13 for Europe and 51 for the World; maternal mortality ratio by 100,000 live births: in Africa it stands at 620 compared to21 for Europe and 260 for the World3. The analyses of these figures are further explained below:
For instance, millions of African children die every year due to preventable diseases, and tens of millions of children are out of school avoidably. Lost monies to IFFs would be used to hire teachers and improve primary education. It was this realization that led teachers in Tanzania to sue, in 2013, the government of Uganda for providing for tax avoidance opportunities to some businesses that would harm the prospects of the Tanzanian government’s ability to harness resources that could be used to hire teachers and pay good wages, as well as build schools.
One can also infer that the availability of these monies would have significantly contributed to the development of health care, especially in rural communities, where the Ebola Virus Disease (EVD) struck in late December from Guinea and later to Sierra Leone and Liberia.
A UNECA report4 showed that 400 billion lost to Africa is enough to cover employment of 14,000 new health workers for a full year; could have paid for one year of education for 41, 000 children. In fact, trade unions are aghast why Liberia will be handing over primary education to private for-profit firms with little thoughts for the rights of children to education, which in fact is a universal right.
Trade union tax justice campaign and demands to halt IFFs
To contribute to reverse these trends, African workers and their organisations from 2013 have steadily continued to drive the campaign on the strength of self-enlightened interest. The campaign message is “Stop the Bleeding” referring to the financial haemorrhaging effects of IFFs on Africa’s revenues and economies.
Essentially, the approaches have constituted mainly: educating their members of what the issues on and around tax justice are about with the view to help their members, as well as the general public access simplified meaning of the supposed technical jargons of tax developed deliberately to exclude people from the scrutiny and comprehension around tax administration; seek and build alliances with other progressive organisations, especially within the civil society movement to leverage on technical expertise and material support with the view to increase people’ voices; working to develop trade union own and owed narratives on and of tax justice through research; mobilising workers and their allies to the streets to demand from governments and big businesses for progressive tax justice actions and reforms; linking and connecting the tax justice campaign to other struggles trade unions involved in the quest for the structural transformation of Africa, amongst others.
Some of the campaign demands include:
Call for African governments to commit to genuine and effective implementation of the recommendations of the AU report on Illicit Financial Flows (IFF) from Africa.
Aggressive pursuit and the creation and sustainability of a progressive tax base as a sure and steady way of domestic resources mobilisation. This will include mass creation of jobs that will provide the opportunity for the expansion of the tax base. By this, African governments can set the agenda for improving public services delivery and sustainable development. Besides, this is a core issue of sovereignty and self-determination. Progressive tax justice policies mean African countries can be financially self-sufficient and free from aid dependency.
African governments commit to ensure that companies doing business in Africa pay their fair share of tax on the economic activities that takes place within our jurisdiction. Whether companies are extracting minerals, setting up factories, or selling goods or services, not to insist that businesses pay their fair amount of taxes might lead to the deprivation of the rights of people. This also means addressing race-to-the-bottom tax incentives and tax competition policies on a regional basis.
African governments to strictly limit the use of discretionary incentives and provide transparent explanations and parliamentary reviews of incentives when they are used.
African governments undertake national and regional coordination to reduce harmful tax competition across borders.
Importantly, African governments must resist the temptations and advices to undertake tax policies that will pass tax payment burdens on the poor. For instance, essential items such as food and medicines should not be taxed. Rather, we will encourage taxing of luxury goods, as well as suggest that government considers higher taxes on harmful goods such as cigarettes.
Strongly urge African governments to continue to pursue recovery of assets looted by public and private officials and not accept regressive advice such as national assets sale. Investigation of the recent Panama Papers leaks with the view to prosecute culprits and recover the loot would be a necessary and commendable action from African governments.