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Rachel Etter-Phoya ■ A win for African leadership on international tax

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Foosball table

Denied a seat at the table to decide tax rules, African countries moved the table to the UN.

Malawi loses US$58 million in tax per year due to cross-border tax abuse by multinational companies. And this is just the tip of the iceberg as it’s hard to count illicit money because it’s hidden. This loss is about 6% of government revenue.

If all we did was collect this tax and change nothing else –  if the government continued to allocate the same share of its budget to education like its done in the past – we’d see more than 100,000 children attend an extra year of school here in Malawi over 15 years.

How is this possible? The existing, outdated international tax system allows multinational companies to shift profits out of Malawi. This reduces the taxes owed in the country. Multinationals make profit by extracting resources from Malawi, by employing workers in Malawi and by selling goods and services to customers in Malawi, but some book profits in tax havens instead of here where it should be fairly taxed. This hurts our economy, hollows out our public services, and undercuts Malawian domestic businesses.

We are all too keenly aware that our public purse has come unstitched. And the gaping holes mean that money meant for the public good is used for private pursuits. So while we mend the purse, we also need to make sure we stop theft from it through tax abuse.

Tax rules for the rich

For the last 60 years, the rules have been set by a club of rich countries at the Organisation for Economic Co-operation and Development (OECD). Companies exploit networks of double tax treaties to get away with paying as little tax as possible. Some treaties still in place in Malawi were signed by the British, before we became a republic. Before most of Malawi was even born.

The OECD group attempted in recent years to change the international tax rules. They even set up a so called ‘inclusive framework’ to bring in non-OECD members to make decisions. Yet half of African countries are not represented. And Malawi does not have a seat at the table. The new “solutions” would only apply to the largest companies, the proposed minimum corporate tax rate of just 15% is well below Malawi’s and most of Africa’s current corporate tax rate, and research indicates that the biggest gains would be for the richest economies.

The system is set up to fail Malawi and African countries. As a result, African ministers and leaders have consistently called for international tax rules to be made in the only legitimate and democratic space for it – the United Nations. We would not trust a small group of the most historically polluting nations to determine the rules for climate. Equally, tax rules need to be decided by all nations and not those that have economies based on generations of imperial plunder and tax havenry. The UK and its spider’s web of crown dependencies and overseas territories is responsible for nearly a third of corporate tax losses, according to the State of Tax Justice 2021.

Tax rules for all

African leaders have been pointing out the injustices of the international tax architecture for years. The African Union High Level Panel on Illicit Financial Flows, chaired by former South African president Thabo Mbeki, raised the profile of the urgent need to stop corporate tax abuse – and other illicit financial flows – almost a decade ago. This influenced the first ever globally agreed target to reduce illicit financial flows, as part of the Sustainable Development Goals.

Last week, a historic resolution on international tax was agreed by UN members with unanimous consensus. It was a deeply proud, unshackling moment for the continent.

Developed and presented by the African Group, the resolution gives the mandate to the UN to start intergovernmental talks on tax. Mbeki called this an “obvious and necessary next step to address the global threat of illicit financial flows“, hopefully paving the way for a UN tax convention. It’s a significant shift in leadership from an exclusive club of all the former colonial powers at the OECD to all nations at the UN. The battle will continue as there’s a lot to lose for tax havens. But we finally have a seat at the table.

The Nation originally published this piece on Friday 2 December 2022.

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