1. The Effect of the Use of International Tax Systems on Developing Countries: An African Perspective Tax Justice, Poverty and Development

2. 19/11/09Attiya Waris, University of Nairobi, Kenya2 An African Approach to: 1.Paying Tax and Receiving Benefits 2.Avoiding and Evading Taxes 3.State Failure to Provide Benefits 4.Tax Havens 5.Advantages of Tax Havens 6.Users of Tax Havens 7.Effects of Tax Havens

4. 19/11/09Attiya Waris, University of Nairobi, Kenya4 1. Paying Taxes and Receiving Benefits The French Declaration on the Rights of Man 1789 13. A common contribution is essential for the maintenance of the public forces and for the cost of administration. This should be equitably distributed among all the citizens in proportion to their means. 14. All the citizens have a right to decide, either personally or by their representatives, as to the necessity of the public contribution; to grant this freely; to know to what uses it is put; and to fix the proportion, the mode of assessment and of collection and the duration of the taxes.

5. 19/11/09Attiya Waris, University of Nairobi, Kenya5 Tax revenue and tax expenditure State Resources International Donors (Aid and Loans) Government Business Taxation International Trade State Expenditure Infrastructure Health Education Social Security Defence Housing Judiciary Parliament Executive

6. 19/11/09Attiya Waris, University of Nairobi, Kenya6 2. Avoiding and Evading Taxes Two sets of Accounts (official and unofficial) Unreported earnings Goods and services without receipts: 45-50% misreporting by 10% in South America 60% misreporting by 11% in Africa Payments in foreign jurisdictions 'Gifts' The informal sector (shadow economy)

8. 19/11/09Attiya Waris, University of Nairobi, Kenya8 2. How Multinationals avoid and evade taxes  tax holidays: Ghana 3-10 years in EPZ  Tax incentives/ subsidies: agricultural products  Economic Processing Zones (goods only) : China’s pledge of 10 billion dollars in concessional loans to African states Around 950 Chinese companies have set up operations in Egyptian free zones, representing a total investment of nearly 300 million dollars (17 th November 2009)

9. 2. How Multinationals avoid and evade taxes Industrial Processing Zones (goods and services) Use of Tax havens: Mauritius Freedom of Information and Confidential agreements Use of legal loopholes/tax planning/exemptions: Tanzanite in Tanzania Corruption

10. 2. Comparing FDI v Profits Leaving Africa 1995-2003US$ million loss DRC1,150 Nigeria1,603 Botswana4,678 Angola3,592 Cameroon 156 Kenya 50

11. 19/11/09Attiya Waris, University of Nairobi, Kenya11 2. Case Study: Unilever Case Arms length pricing Transfer pricing Decision: Application of OECD Guidelines Whether in the absence of specific guidelines from the Kenya Revenue Authority the OECD (The Organization for Economic Co-operation and Development) guidelines and the methods prescribed there under for the calculation of an arm’s length price are proper basis for the determination of an arm’s length price as required under section 18() - when the Act provides no guidelines, other guidelines should be looked at a tax payer is entitled to demand that his liability to a higher charge should be made out with reasonable clarity, before he is adversely affected

12. 19/11/09Attiya Waris, University of Nairobi, Kenya12 2. Impact on African Countries of Avoidance and Evasion Less disposable revenue available to states World Bank’s Stolen Assets Recovery Programme states that cross-border flow of the proceeds from criminal activities, corruption and tax evasions amounts to between US$1 trillion to US$1.6 trillion per year worldwide It places at more than $480 billion the amount leaving Sub-Saharan Africa as capital flight, with Kenya contributing Growth of informal unregulated economy (43% of GDP in Africa shadow economy v 16% in OECD countries) Corrupt leaders US$ 40 billion annually

13. 19/11/09Attiya Waris, University of Nairobi, Kenya13 3. State Failure to Provide Benefits Poor policies Foreign imposed policies (WB, IMF) Loan Conditionalities No independent contextualised policy development Globalisation and trade liberalisation

14. Poverty Share Leg end : 4110 (No data )

15. 1 India: 41.01 % of world's poor India 2 China: 22.12 % of world's poor China 3 Nigeria: 8.03 % of world's poor Nigeria 4 Pakistan: 3.86 % of world's poor Pakistan 5 Bangladesh: 3.49 % of world's poor Bangladesh 6 Brazil: 1.82 % of world's poor Brazil 6 Ethiopia: 1.82 % of world's poor Ethiopia 8 Indonesia: 1.49 % of world's poor Indonesia 9 Mexico: 1.43 % of world's poor Mexico 10 Russia: 0.99 % of world's poor Russia 11 Ghana: 0.78 % of world's poor Ghana

16. 11 Nepal: 0.78 % of world's poor Nepal 13 Colombia: 0.76 % of world's poor Colombia 14 Kenya: 0.72 % of world's poor Kenya 15 Mali: 0.71 % of world's poor Mali 16 Madagascar: 0.68 % of world's poor Madagascar 17 Burkina Faso: 0.62 % of world's poor Burkina Faso 18 Mozambique: 0.61 % of world's poor Mozambique 18 Tanzania: 0.61 % of world's poor Tanzania 20 Niger: 0.59 % of world's poor Niger

17. 19/11/09Attiya Waris, University of Nairobi, Kenya17 3. Fiscal Dilemmas in Developing Countries Globalisation: Debt, Aid and Trade Regionalism (EAC Draft Common Market Protocol finalised 20/11/09): Withholding tax 5% Royalties, Dividends 10% Corruption Illicit fund flows Public Finance Collection and Distribution Human Rights and Social Welfare Participation

18. 19/11/09Attiya Waris, University of Nairobi, Kenya18 3. EPAs Under EPAs Region Loss of Customs Revenue SADC19% Cariforum 14% LDCs (8% of total revenue )38%

19. 19/11/09Attiya Waris, University of Nairobi, Kenya19 4. Tax Havens Tax efficiency=denying sovereign governments their income Allen Kagina Customs Commissioner Rwanda noted capital flight, presence of tax havens and the continent’s dependence on foreign assistance and indebtedness as some of the most pressing issues of the revenue sector. “Billions of dollars leave the African continent each year. Between 1961 and 2004, these outflows are estimated at around 7.6 per cent of the annual GDP of the region and in effect make African countries net creditors of donor countries,”

20. 19/11/09Attiya Waris, University of Nairobi, Kenya20 5. Users of Tax Havens Ordinary citizens with a certain income level Scared citizens (unstable state) Foreigners (expatriat workers) Tax evaders: Corporations Criminals (drug dealers) Corrupt persons

21. 19/11/09Attiya Waris, University of Nairobi, Kenya21 6. Effects of Tax Havens Fiscal drain from one state to another Bloating of economies Instability of economies Encouraging corruption/criminal activity Poverty

22. 19/11/09Attiya Waris, University of Nairobi, Kenya22 7. What is African civil society saying Protect the innocent: not our crisis Ensure current crisis doesn't undermine efforts to address the food, energy, and climate crises: however their funding is also drying up Allow poor countries to engage in the regulatory reform process Enable African countries to engage in the institutional reform process

23. 19/11/09Attiya Waris, University of Nairobi, Kenya23 8. Recommendations Support the debt campaign Asking for more direct income redistribution schemes from the natural resources. Strengthening public finances Accountability, responsibility and transparency Equity in redistribution

24. 19/11/09Attiya Waris, University of Nairobi, Kenya24 Recommendations Constitutionalisation of participation Financial crisis: break the globalisation trend Develop more regionalism Selective decoupling of economies Pay taxes but demand re-distribution

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