Africa Progress Report: Tax loopholes “costing Africa dear”

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Former UN Secretary General condemns “illicit financial outflows”
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Africa loses twice as much in illicit financial outflows as it receives in international aid,” the ex-UN chief Kofi Annan said  in his foreword to the 120-page Africa Progress Report released on May 10th.

Firms that shift profits to lower tax jurisdictions cost Africa $38bn  a year, says the report produced by a panel of 10 prominent personalities, which includes former Nigerian President Olusegun Obasanjo and Mozambican Graca Machel, Sir Bob Geldof and the chief executive of the Prudential, Tidjane Thiam.

Tax avoidance, secret mining deals and financial transfers deprive Africa of the benefits of its resources boom, Annan said. African countries needed to improve governance and the world’s richest nations should help introduce global rules on transparency and taxation, Mr Annan continued.

The report gave the DR  Congo as an example, where between 2010 and 2012 five under-priced mining concessions were sold in “highly opaque and secretive deals”. This cost the country, which the charity Save the Children said earlier in May was the world’s worst place to be a mother, $1.3bn in revenues.

This figure was equivalent to double DR Congo’s health and education budgets combined, the report said.

BBC News Online said the report added that many mineral-rich countries needed “urgently to review the design of their tax regimes”, which were designed to attract foreign investment when commodity prices were low.

It quotes a review in Zambia which found that between 2005 and 2009, 500,000 copper mine workers were paying a higher rate of tax than major multinational mining firms.

“We are not getting the revenues we deserve often because of either corrupt practices, transfer pricing, tax evasion and all sorts of activities that deprive us of our due,” Mr Annan told the BBC’s Newsday programme.

“Transparency is a powerful tool,” he said, adding that the report was urging African leaders to put “accountability centre stage”.

Mr Annan said African governments needed to insist that local companies became involved in mining deals and manage them in “such a way that it also creates employment”.

“This Africa cannot do alone. The tax evasion, avoidance, secret bank accounts are problems for the world… so we all need to work together particularly the G8, as they meet in June, to work to ensure we have a multilateral solution to this crisis,” he said.

He would be calling on the G8 and later on the G20 to enforce corporate transparency so that citizens in developing countries can see exactly who owns the companies involved in mining deals.  He  would also like to see a crackdown on the international tax rules that allow multinationals to shift profits from one country to another with impunity.

“Here on our continent, it affects the life of women and children – in effect in some situations it is like taking food off the table for the poor.”

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