Tax Transparency: A new development agenda for OGP

Zitto Kabwe, MP Chairperson PAC, URT London 1st November 2013

The Problem
Weak tax systems (Lack of tax transparency) in developing countries have open doors for illicit money flow to offshore accounts 1980-2009: Approximately US $ 1.4 trillion in net resource transfers away from Africa (GFU/ADB, 2013) Annual illicit flow from Africa is est. 50bn US $ (Net flow of FDI +Foreign Aid = 80bn US $)

Thus
Africa is loosing more money from illicit flow than what it gets from foreign aid Foreign aid is not the solution to Africas poverty and development issue Curbing illicit flow of money from Africa will retain more money than what is gained from foreign aid Tax transparency is integral to the curbing/fight against illicit financial flows

Transparency Gaps:
Tax transparency gaps are at two levels:
International Domestic

Both levels sustain illicit flow of money to offshore accounts The main culprits are the MNCs (FDI) and criminals Most MNCs (FDI) in Africa are based on extractive sector

Extractive Sector
The extractive industries sector is central to the illicit outflows of money from Africa Thabo Mbeki 1998 2011 TANZANIA - Total value of minerals exported USD 11.13 Billions - Total FDI into Mining Sector is USD 3 Billions - Total Government Revenue from the mining Sector USD 445.2 Millions JUST 4% OF TOTAL MINERAL EXPORTS AS TAX REVENUE

FDI accompanies tax avoidance

Of the top 20 FDI source countries to Tanzania, 10 are Tax Havens including City of London, Mauritius, Singapore, British Virgin Islands, Bermuda, Luxembourg, Switzerland and Cayman Island Tax planning schemes through Base Erosion and Profit Shifting is henceforth largely associated with FDIs and more by MNCs in Extractive industry Double Taxation Treaties are secretive, provide incentives for tax avoidance and impoverish African people.

What is to be done? Action Plans

Make tax transparency a new OGP development agenda: *My letter to UK Prime Minister http://zittokabwe.wordpress.com/2013/05/29/my-letter-to-prime-minister-davidcameron-number10gov-david_cameron-on-british-offshore-tax-havensforeignoffice-ukintanzania/.
Annual illicit flow from Tanzania at USD 560 millions could massively reduce Maternal Mortality now at 597/100,000 pregnant women and Infant Mortality at 114/1000 births and improve quality of education to 8 millions children in primary schools Could provide social security coverage to 6 million small holder farmers through special scheme, boost domestic savings and invest in agricultural infrastructure.

***Poverty in Africa cannot be understood without understanding the role of Offshore Nicholas Shaxson in Treasure Islands.

Action Plans cont

Register of Companies, trusts, foundations must be made public with beneficial ownership Fiscal transparency must not only involve expenditure tracking but also Revenue tracking especially by MNCs Incorporating tax transparency information on IRM

Action Plans cont

OGP Country Members to be encouraged pressured to sign and ratify the Convention on Administrative Assistance in Tax matters and lead to Automatic Exchange of Information

Reciprocity shall not be a condition for developing countries to access information Financial Transparency rules for MNCs by adopting Country-by-Country reporting

THE END
Asanteni sana

ILLICIT FINANCIAL FLOWS IS A DEVELOPMENTAL CHALLENGE TAX TRANSPARENCY IS A SOLUTION