Tax is a collective obligation to build a decent society. Too many companies are avoiding their civic responsibilities
Africa is on the crest of a global commodities boom. Mozambique and Tanzania are emerging as major exporters of natural gas; Guinea and Sierra Leone have iron ore; while in the Democratic Republic of the Congo, cobalt mining is booming. Strong demand will drive another decade of high prices for Africa's natural resources. Foreign investment is on the rise. But so too are avarice and corruption, on such a scale that instead of enjoying significant investment in healthcare, education and agriculture, Africa is again being plundered.
That is the view of the annual Africa Progress Report, published last week, produced by a panel of luminaries led by the former UN secretary-general Kofi Annan. Large-scale tax avoidance and evasion, financial transfers, offshore registered companies and secret mining deals cost Africa £25bn a year, twice as much as it receives in aid. "These are global problems that demand multilateral solutions," Annan said last week.
The G7 leaders' meeting in Britain yesterday voiced their determination to combat tax avoidance. David Cameron has made tax and transparency key subjects for next month's G8 meeting at Lough Erne, Northern Ireland. George Osborne yesterday emphasised how central the issue is to government strategy and, as we report, will pursue his tax-reforming strategy at a meeting of EU finance ministers later this week. This is admirable, but a glimpse at the Africa Progress Report shows how much work there is to do. And not just in tightening up international legislation, but also in effecting a cultural change in the way the leading firms conduct their business.
The scale of greed, the absence of conscience and the stupidity of not investing in the creation of stable future markets in Africa are laid bare in the report. Take the example of the Eurasian Natural Resources Corporation (ENRC) in the Democratic Republic of Congo (DRC). The FTSE 100 mining company is heavily criticised for "opaque concession trading". Five mining stakes bought by the company in 2010-2012 were state assets allegedly sold at far less than their true value. The cost in lost revenues to the DRC is calculated at $1.3bn – equivalent to its health and education budgets combined. Multiple offshore vehicles were deployed to conceal the secretive deals, precisely the sort of lack of transparency that the G8 is committed to tackling.
The Annan report also highlights how, in the four years to 2009, half-a-million copper mine workers in Zambia paid a higher rate of tax than the major multinational mining firms that were harvesting billions of dollars in profits. How can this be right? And why has such behaviour become acceptable?
The examples are everywhere. In 2011, Google paid just £6m in corporation tax on revenues of £2.5bn in the UK. Its chairman rightly said that they "comply with the law". The problem is that our law has not found a way of adequately taxing companies such as Google. In the meantime, such firms use every conceivable mechanism to avoid paying tax. They then offer a risible justification, such as Schmidt did when he said that Google employs 2,000 people in Britain.
Not good enough. Google employs people – try making money without doing that — and makes billions in the process, but puts practically nothing back into the country from which it harvests £2.5bn annually. Nothing to help finance the education of the next 2,000 employees from this country. Nothing to help maintain the physical infrastructure of a country where it does business. Nothing to help subsidise the cultural riches that make this country an attractive place to live and work. Nothing to help pay for the judicial, legal and police institutions that make the country a safe and civil place to do business.
We as a society – and that includes business behemoths such as Google – have responsibilities to deal fairly with communities with whom we trade. The pioneers of benevolent capitalism recognised their obligations to help build a decent society from which they profited.
But Google is not alone. Last week, it was announced that more than half of Britain's wealthiest people were hiding billions of pounds in offshore havens to evade tax, helped by 200 accountants and advisers. Tax evasion is illegal but tax avoidance, finding legitimate loopholes to avoid paying a fair tithe as a citizen, is rampant. Last year, a Tax Justice Network (TJN) report revealed that the global super-rich have hidden £13tn of wealth offshore.
Illumination about the true state of the UK's financial affairs has been helped by the work of the public accounts committee, chaired by Margaret Hodge, an invaluable fiscal watchdog. Last month, it castigated the four large accountancy firms, Deloitte, Ernst and Young, KPMG and PwC, which earned $25bn from advising on tax avoidance.
In the 1960s, accountants deemed avoidance an undignified practice, acknowledging that tax is a collective obligation to build a decent society. Now it is a lucrative business – finding new ways to short-change the chancellor and rip off developing countries. Amazon in the US lobbied effectively for 20 years to avoid paying the sales tax levied on "bricks and mortar" retailers it competes with and increasingly puts out of business. Jacob Weisberg, writing in the Financial Times, pointed out that we have "a political system so compromised and sclerotic that it cannot correct even the most straightforward economic unfairness in a timely fashion". The average taxpayer can only rage. But what is to be done?
Globally, changes are under way. From July, for instance, in Singapore, laundering profits earned from tax evasion will be a crime, while Luxembourg ends its bank secrecy policy in 2105. More is required. The international tax system is a century old and needs radical redesign, not repair. TJN proposes a unitary tax system of transnational corporations, "to tax them according to where their genuine economic activity is, rather than where their tax advisers pretend it is". The US Dodd-Frank Act that requires full disclosure of payments by resource-extraction companies to foreign governments needs to be built on – and comparable EU legislation is required.
At home, HMRC requires more, not fewer, resources. Serious questions too need to be asked of George Osborne's decisions at the last budget that appear to make it even easier for companies to shift their profit into tax haven subsidiaries. Tax havens should end.
Political will, co-ordinated international action, more public education and tax systems that work for all might give Africa a fresh beginning. We also need to create a new moral consensus that says those companies and individuals who pocket obscene amounts of wealth without paying their civic dues should be denied our custom and treated instead as the freeloading pariahs they are.