By Nikolaj Nielsen
BRUSSELS - Tax avoidance loopholes for EU-based multinationals introduced by the World Bank and the International Monetary Fund (IMF) are said to be costing African countries double the amount they receive in foreign aid.
“It is killing us, you cannot now explain poverty in Africa without this and this is the story that has been supressed for so long,” Zitto Kabwe, an MP who is also chairman of the public accounts committee in Tanzania, told this website on Wednesday (30 October)
He said Tanzania was forced in the late 1990s by the World Bank and the IMF to sign tax rules and tax laws which are favourable to investors, while depriving it of much needed revenue that would help wean it off foreign aid.
Kabwe said EU and other Western multinationals, including a Tanzanian state owned company, use tax havens and other illicit schemes to scam the countries of the continent out of around $50 billion every year.
By comparison, they receive $30 billion in foreign direct aid.
“Almost twice the amount of foreign aid that Africa receives is getting out of Africa through illicit financial transfer, through tax avoidance and the likes,” he said.
A 2011 IMF report on Tanzania, he noted, noted the country is unable to collect taxes due by foreign companies.
“They forgot that they [the IMF] are the ones who provided consultants for us to enact laws that are favourable to investments,” he said.
He noted that the IMF and the World Bank advised African states to design policies and laws which multinational corporations “are abusing to avoid paying taxes in our countries.”
Both institutions, he said, in a twist of events, are now offering advice to stop the abuse.
The IMF, contacted for this story, did not respond to the allegations. But a possible solution, said Kabwe, is putting an end to double taxation arrangements used by multinationals who funnel their profits into tax havens like the Isle of Man or the British Virgin Islands.
Mining and telecommunications are the two largest sectors in Tanzania where EU-based companies exploit the loopholes for their own benefit. “Almost all the mining operations in Tanzania are from Europe,” he said. He noted that African Barrick Gold, which is registered in London, operates the most mines. Another, AngloGold Ashanti, is registered in South Africa but with subsidiaries registered in offshore tax havens, he added.
Three major mobile companies operate in Tanzania. One is based in Dubai, itself a tax haven, and one each registered in the Netherlands and in the UK, he noted.He said big oil and gas companies like Statoil, Ophir, Shell, and Exxon Mobil are also in Tanzania, but no evidence has surfaced that they are using tax havens, except for the UK-owned PanAfrica Energy and British Gas.
“PanAfrica Energy operate from the Cayman Islands and Mauritius and this is a British government-owned company using tax havens to bring their FDI [foreign direct investments] to Tanzania,” he said. He noted that the problem is manifold because a Tanzanian state-owned company was itself using a tax haven in Mauritius to avoid filling its own national coffers. Chinese companies working in Africa, by comparison he said, are more transparent on taxes and pay their dues though they tend to scam on public procurement.
Kabwe, along with a handful of other delegates from Africa organised through the Brussels-based development NGO Eurodad, is set to discuss the issue with the European Commission on Thursday (31 October).
Savoir Mwambwa, from the Nairobi-based Tax Justice Network, said ending the scams orchestrated by EU-based companies would make Africa less dependent on aid.
He said Zambia Sugar, a subsidiary of the British Associated Foods company, would inflate their wage bills by making payments to a ghost branch in Mauritius.
“One common thing about all these companies, if you look at all the instruments they use, they all have businesses in one form or another in tax havens,” said Mwambwa
The EU, for its part, has proposed reforms on accountancy and transparency directives.
The reforms, backed by the European Parliament in June, would require companies in the extractive and logging sector to publish an annual report disclosing the details of tax, bonuses and other payments made to governments for every project they operate over a $100,000 threshold.
The move drew praise from Oxfam, which said it would help fight tax dodging by EU companies in the developing world.
The reformed EU law is set for launch in 2015.