It is one thing to distil a complex global discussion on the relationship between tax and development finance, nicely correlated by the OECD as a means of making their work on international tax reform accessible to the proverbial, ‘ reasonable man on the Clapham omnibus’.
It is entirely quite another to draw unproven linkages which serve to inflame the public against the haves and the have-nots’; while offering no real solutions to funding real and sustainable development. It is not correct to draw a straight line between tax avoidance, which is not illegal; and persistent under-development. This is, at best, indulgent intellectualism; and at worse, one of the causes of the seemingly entrenched misunderstanding about how international trade and commerce works.
To be clear, I am not speaking about bribery or corruption, those do not fall into the definition of trade and commerce, although these activities have not be untouched by such practices.
What I am referring to is the modern affectation of the anti-tax avoidance anti-MNC NGO lobby insists that developing countries need to claw back the profits of MNCs so that ‘recovered’ funds can be applied to development objectives. It is true that the NGO lobby prefer the one line cliques that motivate the masses to ‘keep on giving’. In matters of government policy, rules and regulations, however, more than catchy refrains are needed to realign the balance of the bargain between the investor and the host state.
For this reason the following paragraph though increasingly ‘par for the course’ is decidedly unhelpful:
“Malawi is losing out on significant revenue as a result of corporate tax avoidance. Recent research has shown that the country lost out on $43m over six years through the tax practices of just one company – the Australian mining firm Paladin.54 That is equivalent to a third of Malawi’s annual health budget,55 and is enough to pay the annual salaries of 17,000 Malawian nurses.56 The $43m that Paladin cut from its tax bill in Malawi has robbed the country of vital revenues that could have been invested in an overwhelmed healthcare system serving people in poverty. Companies must be held to account for their national operations and be taxed accordingly. Governments must end the practice of providing tax incentives that deprive the public purse from much needed revenue. Furthermore, governments must cooperate at a global level to reform the broken global tax system that makes large-scale corporate tax avoidance easy and inevitable. Governments of richer countries, where most of these multinational companies are based, have a particular responsibility for stopping these exploitative tax practices.”
Inserted strategically in an attention-grabbing ‘box’, the clear implication is that the forcible imposition of a new business model on multinationals, precipitated by a change in the tax (and by extension investment environment) in a ‘host’ state will inexorably lead to the ‘plugging’ the budgetary ‘gap’ in Malawi’s health services.
In its conclusion OXFAM urges Malawi to : “Stand up to corporations demanding unfair tax breaks, which starve government accounts of vital revenues for public services”
While we understand the importance of including this now insipid narrative in these types of NGO publications; I would like to suggest that before we start down the road that points to a tax policy space which suggests that taxes on business will lead to more budgetary support for social services, have a read of this thoroughly commendable analysis.
Its authour suggests that perhaps there is no development finance ‘pot of gold’ at the end of the anti-tax avoidance ‘rainbow’.Read it here (click on MEDIA and scroll to the end)