Death and taxes
Nothing in our lives is certain except death and taxes, goes the old English saying. But looking at the recent tax avoidance scandals, it seems that for some wealthy individuals and multinational corporations, only one of these life certainties applies. With a workshop organized this week in Addis Ababa, UN DESA, with financial support from the Government of Italy, is helping African countries ensure that their badly needed revenues do not end up in tax havens.
While not necessarily illegal, tax avoidance strategies are morally questionable, to put it mildly. They use loopholes, disconnects and design errors in international law to help rich people and big, multinational companies avoid paying their due taxes. The practice is even more questionable in developing countries – places that combine the most urgent need for financial resources with the weakest capacity to retain those resources within their borders.
“Regrettably, most developing countries lack the legislation and the necessary guidelines on proper taxation or effective units to address the problem,” said the UN Economic Commission for Africa’s (UNECA) Aida Opoku-Mensah. “Most developing countries do not have enough highly trained lawyers, accountants and tax experts to prevent or punish perpetrators of tax avoidance and evasion. Therefore, the work that UN DESA is doing is very important.”
The African Union Commission (AUC) and the UN Economic Commission for Africa estimate the illicit financial flows out of Africa at a whopping US$50 billion every year. Over the last 50 years, approximately US$1 trillion has left the continent illegally – roughly the same amount that Africa received in foreign aid over the same period.
The money lost to tax evasion and to base erosion and profit shifting would have otherwise served African countries to improve their infrastructure, healthcare, education, protect their environment and to find themselves much closer to achieving every one of the ambitious Sustainable Development Goals (SDGs) than they are today.
In the seminal Addis Ababa Action Agenda adopted in 2015 to support the SDGs, the global community committed to improve the fairness, transparency, efficiency and effectiveness of the tax systems and recognized the importance of development-oriented tax policies, modernized tax systems and efficient tax collection procedures.
UN DESA’s Financing for Development Office launched a project on international tax cooperation to strengthen the capacity of developing states to reach these goals. It focuses on three crucial areas: engagement and participation of developing countries in international decision-making; assessment of options to protect and broaden the tax base; and the effective and sustained implementation of the best options.
The project resulted in the publication of the UN Handbook on Selected Issues in Protecting the Tax Base of Developing Countries, that was presented in Addis Ababa in 2015. The Handbook outlines the most suitable options and easy-to-implement approaches to help developing countries protect their tax base.
UN DESA’s workshop, which ends on 10 November in the Ethiopian capital, focused on the new elements of the second edition of the Handbook and the accompanying Practical Portfolios. It also explored the relation between taxation and achieving the SDGs, with a special focus on issues such as taxation of natural resources and environmental taxation.
“The [African] continent is taking tangible steps towards a coherent approach to curb illicit financial flows and to shore up the tax base, and to ultimately help strengthen and protect African countries and increase their domestic resource mobilization,” said Ms. Opoku-Mensah.
“It’s important that African countries move away from aid and look at how they can increase domestic resource mobilization,” she added.