By

Tom Odhiambo

Title: Framing Feminist Taxation; Publisher: Global Alliance for Tax Justice (GATJ); Authors: GATJ; Publication Date: June 2021; Pages: 53.

Electronic Access: Free Download, Use the free Adobe Acrobat Reader to view this PDF file.

When one speaks the word ‘feminist’ it often conjures images of a woman or women who are ready to fight ‘patriarchy’, in a manner of speaking. In fact, in many parts of Africa the word is taken to mean women who are ready for a confrontation with men and other women in any subject that touches on women’s rights or lives.

To claim to be a feminist suggests a battle, a war, a cause to fight for. In many cases, African feminists – women or men – tend to speak eloquently and act stoically about the rights of women in the society in which they live. Thanks to the global rights movement, there are feminist activists nearly in all parts of Africa.

Yet, the language and pursuit of human rights tends to throw fog on the finer details of everyday human struggles. The discourse and practice of human rights, for instance, is often not translated into the minutiae of economic, political, cultural, social, religious, or spiritual rights for women in specific communities.

Even where human rights defenders isolate the task at hand as particular rights to do with women, say the right to go to school for the girl child or the right to access maternal health care – the concerned individuals and institutions gloss over or do not link the lack of these rights to institutionalized economic marginalization.

Yet, struggles for human rights need to see the bigger picture in which a range of practices and institutions interconnect to cause one deficiency or another. For instance, how does tax affect women’s livelihoods, lives, and socio-economic, political, cultural, personal or even gender rights.

Reading Framing Feminist Taxation (2021) a tax guide based on experiences from Uganda, one realizes the urgency of looking at and understanding how tax and taxation affect women from a multi-sectoral perspective if not perspectives.

This guide is divided into four parts: Introduction to International Financial and Tax Architecture; Feminist Perspectives and Principles; Feminist Economics: Reimagining the Economic and Tax Systems; From Plans to Actions – An Advocacy Guide for a Feminist Taxation Framework to Fulfill Women’s Rights.

In the first section, the authors outline the need for knowledge on who or what institutions run the global financial system and how these individuals and organizations determine global or local economies plus their tax regimes.

It is important that fighters for and defenders of women’s rights should know how the IMF or African Development Bank or the African Union, a few of the organizations mentioned in this section, make decisions that impact local industries, commerce, taxes and lives of all and sundry.

Considering that taxes and taxation affect savings, investments, and livelihoods, how do the policies and actions by such organizations affect women’s lives in the short and long runs?

The second section reprises the old question of power equation in society. What is power and how does it manifest itself? How does such power affect economic production, collection of public revenue, distribution of such revenue or the tax burden for women and men; for the poor and the rich; for the abled and the disabled.

Framing Feminist Taxation notes that power appears in at least three forms:

1. Visible power – that which one sees and feels in public such as held by politicians or bureaucrats, or as held by heads of households or clan heads, even heads of criminal gangs, a majority of them tend to be men,
2. Hidden power – this about the agenda setters or influencers or members of a caste or economic group,
3. Invisible power – which is the capacity of individuals or institutions or any other force to shape people’s views, beliefs, needs, biases etc, such as is done by social media these days or even religious or political leaders through rituals and doctrines.

The third section reminds readers of the seeming deliberate inattention to women’s economic productivity by orthodox economics.

Although it is not a new claim, Framing Feminist Taxation reinforces the argument that traditional methods of measuring economic production in a country, Gross Domestic Product and Gross National Product (GDP and GNP) do not consider the amount of time, resources and the productivity of women who work every day in the houses or homes they live in.

Raising children, cooking, cleaning the house, maintain the home etc are hardly factored into the measures of economic production and growth. Most of these are duties are performed by women.

Section Four is an outline on what can and should be done to make women suffer less from taxes and taxation. Here, the authors of Framing Feminist Taxation root for action rather than more policy formulation. They argue that from a feminist taxation perspective, there is need for more campaigns for tax justice for women’s rights.

They note that individuals and groups need to identify a problem and thoroughly analyze it; think through the advocacy approaches, such as engagement with the media, directly demand action from policymakers and holders of power, mobilizing the public to leverage pressure, and use of digital communication and online media; engage with other women’s organizations to learn from their experiences and also seek support; target specific organizations – public and private, local or international – in the advocacy campaigns, among others.

One of the key lessons Framing Feminist Taxation offers is the need to rethink the traditional approaches to tax and taxation where women are concerned. For instance, why would, for instance, any African government zero rate, computers, or solar equipment but tax paraffin, which is used by a majority of poor households for lighting and cooking?

Why do governments continue to tax women more than men when they tax a married couple as a single unit? In such cases, the woman’s income is treated as a ‘second’ earner, thus suffering a higher tax burden, when they are also likely to be earning far less than the husband.

A feminist approach to taxing the couple would prefer them to be taxed separately – yet the intersection of culture, economics and social practice predisposes the woman to almost a career and lifelong disadvantage. Why? Simply because she is married but also working.

But to change the way the world sees women, taxes and taxation will also mean to literally change the way societies educate the young.

A feminist approach to tax and taxation needs to adopt a multidisciplinary and holistic approach that seeks not just to empower women and advocacy groups to be alert to the networks and processes that overtax women and underspend on their needs.

Such an approach will have to be ever vigilant for the insidious nature of economic exclusion, disadvantage and alienation through socialization, acculturation, education, and other practices of everyday life.

The writer teaches at the University of Nairobi. Tom.odhiambo@uonbi.ac.ke

The East African Tax and Governance Network (EATGN) is proud to launch two studies namely: REVENUE OBLIGATIONS AND CIVICS IN EAST AFRICA – A Human Rights Based Approach to Tax Justice plus ECONOMIC SUSTAINABILITY IN EAST AFRICA – Framing the Linkages Between Public Debt and Tax Justice.

Publication of these works is a culmination of EATGN’s ambition to facilitate the conduct of human rights public debt management research in understanding its linkage to tax injustice in East Africa. EATGN hopes to spur interest from academia, policy makers, faith-based groups, private sector, and civil society organizations (CSO), to understand and advocate for better tax policies within their spheres of influence to achieve sustainable development goals (SDGs).

Download: Revenue Obligations and Civic in East Africa | Economic Sustainability in East Africa. Visit our Publications page.

PHOTO CREDITS: Global Initiative Against Transnational Organised Crime

Today, the artisanal and small-scale gold mining (ASGM) sector is governed by increasingly comprehensive legal and regulatory frameworks and is reliant on transnational supply chains that connect rural mining operations to international gold hubs. However, the increase in illicit activities in gold-rich markets has undermined the potential for this precious commodity to be a catalyst for development in these regional African markets.

Effective responses to illicit activity in gold markets must seek to navigate the tension between combating criminality while maximizing the gold sector’s development potential. This requires a nuanced analysis of market dynamics, supply chains and networks. This study unpacks the factors that shape and drive the East and Southern African gold markets.

Research covered multiple countries, providing insights into national and regional market dynamics and trade flows. The cross-border regional dynamics of illicit gold supply chains means examination of this issue requires applying a wide lens. South Sudan, Uganda, Kenya and Zimbabwe were selected for field research, with some limited research conducted in South Africa.

PHOTO CREDITS: Transparency International

Our favourite whistleblowing film would be an unthrilling, action-free short. In it a whistleblower uncovers wrongdoing, reports it anonymously without fear of retaliation and gets on with their day. They can do so because whistleblowers worldwide are valued and fully protected. Boring, wonderful and guaranteed to put a smile on a corruption fighter’s face.

Unfortunately this is not the experience of most whistleblowers, many of whom risk their jobs, freedoms and even their lives to expose wrongdoing. Their bravery has saved countless lives as well as billions of dollars, and there are some fantastic films that show what they can go through as they do the right thing; from the discovery of wrongdoing to the inner conflict about whether to expose the truth to the aftermath of their shocking revelations.

Here are the eleven best films about whistleblowers that we’ve seen. Let us know if we’ve missed a great one.

PHOTO CREDITS: Centre on International Corporation (CIC)

By

Attiya Warris

There are multiple examples of solidarity taxes imposed across country contexts over previous decades. The solidarity taxes that were levied were done to mitigate effects of a crisis such as a pandemic, as well as rebuilding of nations that had been affected by world wars (examples include Zimbabwe and Germany).

Considering the renewed interest in solidarity taxes in the wake of COVID-19, author Attiya Waris reviews the history of solidarity taxes, and discusses key lessons from the past, in addition to drawing these lessons and findings into policy recommendations moving forward.

By

Appolinaire Nishirimbere

While the COVID-19 pandemic struck and is still ravaging the entire world, tax dodgers are intensifying their tricks to steal more and more from the poor. This is increasing the inequality gap plus negatively impacting developing countries like Burundi.

To cope with this situation, as it appears in its National Development Plan (PND)[1], Burundi intends to rely on domestic resource mobilisation namely the mining sector to propel its economy. In fact, the country not only holds 6% of the world’s nickel deposits but also has gold, tantalum, tin, tungsten, rare earths plus industrial minerals including kaolin, phosphates, and limestones.

However, despite all these efforts, the Burundi Revenue Office (OBR) regrets the huge losses in the sale of minerals. So where does the money from the mining sector go and who benefits from it? Under normal conditions -given the wealth of Burundian subsoil- mining could significantly contribute to job creation, diversify the economy, allow the transfer of technology, and contribute to the increase of state revenue. However, so far it contributes to only 1% of the GDP and 3% of Burundi’s export earnings.[2]

This situation is explained, on the one hand, by the fact that mining activity in Burundi has hitherto been dominated by traditional methods characterized by rudimentary exploitation techniques, low production capacity, and non-compliance in environmental standards. It is also hampered by unfair practices such as tax evasion and avoidance. Furthermore, it is recognised that there is a significant gap that exists between the declaration ​​in production, exports of mineral substances and the actual values. This represents significant revenue losses for the state.

Recently, the sector has become increasingly industrialised with the arrival of multinationals to invest in it. Thus, five companies were approved for geological and mining research work at the end of June 2019. These are Ntega Holding, for coltan and associated minerals (Runyankezi); Tanganyika Gold, for gold and associated ores (Mabayi); RainBow, for rare earth ores (Gakara); African Mining, for gold and associated minerals (Muhwazi) and CVMR, for Nickel and vanadium (Nyabikere, Waga and Mukanda).

In relation to industrial mining, five agreements have been signed between Burundi and the following companies: Comptoirs miniers des exploitations minières du Burundi (COMEBU); Burundi Musongati Mining (BMM); Tanganyika Gold Mining Burundi (TMB); Rainbow Mining Burundi (RBM); and African Mining Burundi.

The conventions between Burundi and the mining companies are drawn up in accordance with the model convention contained in the Mining Regulations. This model convention is inspired by the World Bank Model Mining Convention. Any draft convention is first examined by the government. For the draft convention to be signed it is scrutinised beforehand and then adopted by the Council of Ministers. All of this works to constitute a guarantee of balance and of mutual benefits sought, since the convention gets to analysed by various departments to varying levels. Therefore, mining in Burundi is governed by the mining code which was put in place by law No. 1/21 of 15 October 2013. The tax regime established by this law is characterized by a sharp increase in taxes and mining fees compared to the 1976 mining code and the creation of new taxes.

This mining code is supplemented by Decree No. 100/19 of 16 June 2015 on the Burundi Mining Regulations which sets the conditions and modalities of application. The mining tax regime applies to all operators of the mining and quarrying sector in Burundi and to all prospecting operations, industrial and artisanal exploration research, and quarry products. However, the code and the mining regulations have been seriously criticized by independent or internal observers including some government representatives in the said joint businesses.

Prof. Steve de Cliff’ comment on tweet following the Government’s measure to suspend mining contracts with Rainbow Mining Burundi involved in rare earths exploitation.

For example, in 2018, Prof. Steve Decliff (professor of chemistry at the University of Burundi),  the State representatives on the Board of Directors in the rare earths mining company Rainbow Mining Burundi made the following remark -before being fired from this capacity -in what he called “secrets behind the exploitation of rare earth deposits of Gakara in Burundi”, from it:

“For those who do not know it, the name ‘rare earth’ is given to a group of 17 strategic metals including the 15 of the rows of lanthanides on the periodic table, to which we add scandium and yttrium. There is no doubt that the rare earths deposits at Gakara in Burundi is of exceptional quality. The rare earth veins are in atypical grades that do not exist anywhere in the world. Levels range from 47% to 67%, with an average grade of 55%.

By comparison, the other largest mine in terms of grade is the Steenkampskraal rare earth mine in South Africa, but its average grade is only 14.4%. The other rare earth mines that exist elsewhere in the world have grades that rarely exceed 5%. This is the case of Chinese rare earth mines, which occupy the third place in terms of deposits.

The rare earths exploitation of Gakara is carried out via a joint company, Rainbow Mining Burundi (RMB sm) developed under a mining title which grants to Rainbow Rare Earths (based in London) 90% of the shareholding, and only 10% to the Burundian State. But what the public does not know is that the Rare Earths plant in Kabezi (rural Bujumbura) does not produce ‘rare earth metals’ as such, but rather so-called rare earth concentrates.

To extract the rare earth metals, the company must transport its cargo of ‘concentrates’ to a hitherto secret destination, with another intermediary, ThyssenKrupp, a financial multinational based in Germany. The problem is that in calculating the dividends that accrue to each of the two shareholders, Rainbow Rare Earths claims that the process of separating rare earth concentrates into its metals costs 71% of the real value of these highly strategic metals.

The Burundian Government, which has (remember) only 10% as shares against 90% of Rainbow Rare Earths, sees its shares reduced to 2.9%. That’s not all. From this fraction, we must also deduct recurring costs (such as consultancy and travel experts RRE), which amount to several billion Burundian francs per year. After the final count, for USD 100 of rare earth sold, it’s not USD 2.9 that will land in state coffers, but barely USD 1 or maybe less, or even nothing at all if there is ‘interception by some local eaters’. There are some solutions that all converge in the need to build a rare earth separation plant in Burundi. Perhaps jointly with one or other African countries that have these strategic deposits.” (Author translation).

Oddly enough, huge sums of money in this sector escape the tax net. As announced by the spokesperson for the Burundi Revenue Office (OBR), during an information workshop for Burundi miners on 16^th February 2021[3], OBR expected to collect more than USD 5 billion, but the amount received is not even half of that expected. However, UN experts on the DRC reveal that Burundi sold 2,000 kg of gold in 2020 when only 500 kg was recorded in the OBR’s books.[4]  

It is probably against the above-mentioned background in the mining sector that the Prime Minister Alain Guillaume Bunyoni announced, that Burundi is looking into suspending some contracts with the mining companies. Stating this before parliament, while presenting the government’s mid-term report this year, Premier Bunyoni indicated this as a point of consideration since the country is not benefiting from the contracts.

Globally, Africa loses a lot of capital in illicit financial flows annually. Among this capital that leaves the African continent each year, false invoicing of exports represents USD 30 to 52 billion, mainly linked to gold smuggling. This represents 77% of the under-invoicing of mineral exports in Africa followed by diamond (12%) and platinum (6%).[5]

In Burundi, if OBR were able to track and recover this money to return it to the public treasury, it could be used to cope with the consequences already engendered by the coronavirus pandemic. For instance, the lost USD 2.5 million, once recovered, can pay 1,041 medical doctors annually.

Appolinaire Nishirimbere is a tax justice campaigner in Burundi and co-founder of “Initiative citoyenne pour l’environnement et le développement durable (ICED). Email : appotjna@gmail.com, Phone: +257 75 938 450.

END NOTES

[1] http://www.presidence.gov.bi/wp-content/uploads/2018/08/PND-Burundi-2018-2027-Version-Finale.pdf

[2]https://www.globaltaxjustice.org/sites/default/files/Exploitations%20minieres%20et%20gouvernance%20des%20ressources%20naturelles-Etude%20-Actionaid%20Burundi.pdf    – French

[3] https://obr.bi/index.php/en/actualites/1354-l-obr-sensibilise-les-exploitants-des-carrieres-et-mines-sur-leurs-devoirs-fiscaux  – French

[4] https://www.radiyoyacuvoa.com/a/obr-amakori-y-ubutare-n-inzahabu-ntagera-mu-kigega-c-uburundi/5784877.html     – Kirundi

[5]https://www.dw.com/fr/pour-tout-lor-de-lafrique/a-55979508  c (French)

By

Tom Odhiambo

Title: FY 2021-2022 The Mwananchi Guide Budget Highlights;

Publisher: Government of Kenya (GOK); Authors: Ministry of Finance, National Treasury and Planning; Publication Date: June 2021; Pages: 12.

The government of Kenya’s estimated budget for the Financial Year 2021/2022 is still very fresh. Keen readers of the budget, the women and men who comb it looking for opportunities to exploit, are still hard at work flipping through the pages.

For the general reader, the summaries offered in the newspapers is the only source of information they have.

However, the law actually anticipates that the government will publicize the budget for all Kenyans to be able to see how the government plans to raise revenues as well as spend it. Why is it important that ordinary citizens know about government revenues and expenditure?

Obviously because they are affected as taxpayers. And taxes form a significant percentage of government revenue, especially in poor countries, such as Kenya.

For instance, according to the estimates for the FY 2021/2022, of the expected revenue of Ksh. 2,038.6 billion, the government plans to raise 40.9% of the amount from Income Tax. Value Added Tax will add another 23.2%; Import Duty 5.8%; Excise Duty 11.8%; and Other Taxes 5.3%.

Yes, taxation will, therefore, eat a huge chunk of any money a Kenyan will earn and or spend!

So, there is this little 12-page insert in today’s (30 June 2021) newspapers, declaring itself as ‘The “Mwananchi” Guide. Guide to what? Guide to a discussion of a budget that has already been read? Guide to how much more painful it is going to be for that mwananchi to pay for the government’s profligacy?

Guide to a debate on the ‘Summary of Proposed Tax Measures?’ Guide to the poor PR on ‘Big Four’ Agenda, which proclaims ‘A Conducive Business Environment for Investment’, and talks about ‘Improving National Security? What is it about ‘improving national security?

Apparently the ‘second mass registration for Huduma number’ – that magic state-issued card that would open doors to all government services – will cost the taxpayer Ksh. 1.0 billion! Remember that the Huduma Number cards are yet to be universally issued, more than a year since millions of Kenyans registered for it.

Undoubtedly the budget-making process should involve all taxpayers, or their representatives. Indeed, sessions are often held in most parts of the country to solicit views about what the local and national budgets should consider as priority areas to fund, as well as to talk about the tax burden for taxpayers.

However, if, for instance, an ordinary Kenyan reads that the government proposed in its estimates that it will spend “Ksh. 670.0 million for Digital Literacy Programme”, also known as the ‘School Laptop Project’, when evidence on the ground shows that most pupils in government schools have hardly seen a laptop, then one wonders if Kenyans shouldn’t really spend more time talking about how the government uses its revenue.

Why should the government of Kenya, which really has little capacity to establish a nuclear reactor set aside “Ksh. 1.3 billion for development of nuclear energy and exploration and mining of coal? Sure enough, coal is a source of energy. But it is dirty energy.

Why would any government that wishes to be a leader in environmental conservation ever imagine spending money on mining coal or even investing it in nuclear energy? Probably the more urgent question is: will these monies really be used for the planned projects?

Shouldn’t Kenyans be worried that this budget runs on a deficit? Which parent would buy her family gifts every day or take them on holiday every month or feed them meat at every meal, when she knows that her salary cannot pay for half of the debts she is incurring?

Why would the government of Kenya run a budget deficit of nearly a third of the budget estimates? Who would run a household budget on debts every day, every week, every month, for a year? It isn’t just feasible. It is morally unacceptable.

But this is exactly what the government of Kenya has planned to do with its budget for the FY 2021/2022. It simply means that in the course of the financial year, the government has to play magic tricks, moving monies from one allocation to the next, in cases where the anticipated borrowing from the local market and funding from donors doesn’t work out.

It also means that Kenyans have been mortgaged not just to foreign funders (creditors) but that they are at the mercy of local banks, on which the government will depend for domestic financing. In such a case, can the government really police these banks?

Why should Kenyans always discuss the estimated government budget? Because although it may appear to be just a government affair, it is quite close to home. In one way or another, all Kenyans will and do pay taxes.

Taxes come in many forms. It could be a charge for applying for a government document. Selling some produce from one’s farm is taxed. More than half the cost of a beer is tax. Part of the cost of that boda boda ride is tax. There is tax everywhere, most of it not differentiating between the rich and the poor.

This is why every Kenyan – or citizen of East Africa – should be concerned when the Minister for Finance carries that little briefcase into parliament, ready to read his or her estimates for the annual budget.

Taxpayer education should not just be an occasional call by the receiver of revenue, exhorting taxpayers to do their civic duty and pay their dues. It should be a continuing process of educating citizens on the how, why, and what of the budget process.

Citizens should learn and understand how budgets are estimated; why these estimates differ from one year to the next, and from one sector to the other; and what are the implications of the estimates for the collectors of revenue, payers of tax and expenditure.

‘The “Mwananchi” Guide from the National Treasury and Planning in its abbreviated form does not really even begin to explain to the ordinary citizens, who will bear the brunt of the government’s extravagant spending based on such a huge budgetary deficit, why they should be interested in why the government expects them to pay taxes and how it uses the collected revenue.

Tom Odhiambo teaches at the University of Nairobi. He can be reached at: tom.odhiambo@uonbi.ac.ke or +254720009155

By

Tom Odhiambo

Title: Walking in the dark: Informal cross-border trade in the Great Lakes region

Publisher: International Alert; Authors: Kristof Titeca and Célestin Kimanuka; Publication Date: September 2012; Pages: 56. Electronic Access: Free Download. Use the free Adobe Acrobat Reader to view this PDF file.

Kenyans today use the term boda boda quite conveniently. Generally, it simply refers to the motorbike guy around the neighborhood corner who can ferry someone to any nearby destination at an affordable cost.

The boda guy (trust Kenyans to even tax a phrase) is the local solution to quick human transport needs, delivery of parcels, delivery of foodstuff etc.

Yet many Kenyans do not really know where the tax came from. They would be even more surprised if they were told that one of the reasons boda boda came about is because of taxes and taxation.

The boda boda phenomenon was a natural result of the failed economic policies of President Idi Amin Dada in Uganda. The 1970s and early 1980s saw a rise in cross-borders smuggling of goods from Kenya and agricultural produce from Uganda.

The smugglers avoided the official border crossing points and used what Kenyans call panya (rat)routes. Considering that the governments of Kenya and Uganda could not fully monitor their borders, often the smugglers did not need to bother much about their activities.

Lack of fuel on the Ugandan side also meant that the bicycle was a convenient way of travelling across the border. It was expedient as it also meant that the travelers avoided answering too many questions from border control officials who were often too eager to solicit bribes or extort.

So, although the travel by bicycle acquired the name boda boda because the riders would ask the potential customers if they wanted to cross the border, “border, border?”, the name was also popularized by the fact that the cyclists would outmaneuver the Kenyan police patrol vehicles, who could not catch the riders on a chase across the borders.

The so-called panya routes were really just that, if one accepts the metaphor: they were more or less quick or ‘slippery’ paths, allowing the smaller bicycles to cross easily, whilst posing obstacles to the bigger cats, the police patrol cars.

 All this hide and seek, chase, and lose or get caught games happened because the smugglers and the traders who depended on the goods that crossed the borders did not wish to pay the official and sometimes unofficial taxes that have always been part and parcel of official border crossing points.

Today your boda boda could be a motorcycle or saloon car in the city, although there are still bicycle boda bodas in towns such as Busia (Kenya and Uganda) where the term originated.

What can we learn from this boda boda story? This is really a story of how small cross-border business is key to the survival of border towns.

A study done by International Alert in 2012, Walking in the Dark: Informal Cross-border Trade in the Great Lakes Region offers interesting insights into how small traders are an important part of the commerce and economies of border regions.

This study covered the border points between the Democratic Republic of Congo (DRC), Rwanda, Burundi, and Uganda.

It specifically examined the activities of small traders, mostly women, at the DRC-Rwanda border point of Goma-Gisenyi; DRC-Rwanda border point of Bukavu-Cyangugu; DRC-Burundi border point of Uvira-Gatumba; DRC-Uganda border point of Aru/Ariwara-Arua; as well as the Burundi-Rwanda border point of Cibitoke-Bugarama.

The authors of Walking in the Dark, Kristof Titeca and Celestine Kimanuka, highlight the significance of the economic activities of the small traders studied. They argue that these traders enable “… regions that do not produce enough to cover their own needs to receive supplies of products for individual consumption (mainly foodstuffs).”

Indeed, most cross-border towns in East Africa do not have formal industries. They tend not to have established economic structures on either side of the border, as they were originally established as mere symbolic crossing points.

Considering that these regions would naturally urbanize – immigration officers and other government officials needed accommodation and other services not provided by the government, travelers needed hotels and temporary accommodation, as well as other services such as document processing and health – the borders inevitably grew beyond what they originally had been planned to be.

More important is the fact that beyond the officially stated control of flow of human traffic and goods between countries, and the consequent taxes paid on goods in transit, border points all over the world are always open to smuggling or cross-border trade in small quantities.

In certain jurisdictions there are established taxes to be paid on certain amounts of goods that cross borders. However, at many border points, especially in the cases cited in Walking in the Dark, these points are famously known for the illicit taxes collected by both state officers and quasi government agents, if not outrightly criminal elements.

The authors of Walking in the Dark say this of the traders they studied: “This trade is mostly informal insofar as the traders are not registered and pay no income taxes. However, they do pay export or import taxes accordingly and often pass-through official border crossings with the appropriate travel documentation. They thereby contribute to the national economy, even though part of their operation is informal.”

Yet they also note that as part of the strategies of outwitting the official tax collectors, they sometimes hide certain products in the ones they declare at customs. For instance, one could hide fruits in a sack of grains, or hide jewelry in a pack of clothing.

This is a survival mechanism to reduce the cost of unfair, if not wholly illegal, taxation.

One of the most interesting, but probably most obvious, outcome of the research is the traders’ “… preference for informal taxes as they were ‘negotiable’; however, (i) certain taxes are not supposed to be paid and therefore constitute a violation of national laws, and (ii) these taxes are based on informal agreements that are unpredictable, not sustainable and must constantly be renegotiated.”

Well, any taxpayer would always wish to negotiate what they owe to the tax agent. However, the problem with the situation described above is that a large percentage of taxes paid by such traders do not reach the government’s receiver of revenues. In most cases such levies end up in the personal pockets of the official tax collectors.

One serious consequence of this arrangement is that the traders are at the mercy of the agent with whom they have an arrangement. Should the agents be away from the station or be transferred elsewhere, the traders may probably end up paying a higher tax rate than previously.

In other words, even when they pay the official tax rates, the traders are less likely to receive services that their taxes are meant to pay for.

For instance, their goods may not be inspected as fast as they may desire; their documents – such as receipts – may not be issued on time; they may not have proper waiting rooms at the exit and entry points etc.

If we go back to the case of boda boda that we started with, one can see that just as the cross-border traders then sought to smuggle goods across the borders rather than pay the ‘official’ government exportation and importation levies, even today traders such as described in Walking in the Dark would find it more convenient to try and outwit the inefficient or corrupt government bureaucracies at the border (including crossing the border ‘walking in the dark’) in order to increase their profit margin on their sales.

If only governments across the region could find mutually acceptable and beneficial ways to tax the small cross-border traders, the border towns would be thriving and major business centers.

Tom Odhiambo teaches at the University of Nairobi. He can be reached at: tom.odhiambo@uonbi.ac.ke or +254720009155.

By

Tom Odhiambo

Title: Corporate Income Taxes under Pressure

Author/Editor: Ruud A. de Mooij, Alexander D Klemm, Victoria J Perry; Publisher: IMF Publication Date: 26 February 2021; Pages:388 Electronic Access: Free Download. Use the free Adobe Acrobat Reader to view this PDF file.

Many governments struggle with taxing large corporates. Big business organizations have the capacity to resist or undermine government efforts to have them pay what would be seen as fair tax by smaller businesses or the ordinary taxpayer.

But why should big corporations be expected to pay more taxes? After all, aren’t they just like any other taxpayer, just that they are a larger body? Why should they be charged a higher tax rate when they are simply doing business, and, therefore, creating employment, paying, and sustaining other business that supply them, contributing to economic growth, guaranteeing the government a given amount of income over years etc?

Well, evidence suggests that big corporates do not necessarily play fair all the time when it comes to paying taxes. Thus, how to tax the income of corporates has become a big issue in the recent past, especially as economies are battered by slow growth and poor investments whilst having to serve a growing population.

The IMF, one of the biggest advisors to governments all over the world is naturally an interested party in matters to do with taxation. Therefore it is interesting to read a collection of essays, drawn from cases from around the world, on the subject of corporate income tax.

The book, Corporate Taxes Under Pressure: Why Reform Is Needed and How It Could Be Designed (IMF, 2021) edited by Ruud de Mooij, Alexander Klem and Victoria Perry, is divided into 3 parts: Fundamentals of International Corporate Taxation; Problems of the Current International Tax Architecture; and Reform Options.

Essentially, it is about the history, the practice, and the future of international taxation regimes in relation to corporates.

The one reason this topic is troublesome is because, for instance, for developing and underdeveloped nations, direct foreign investment (DFI) is always touted as a means of raising capital and establishing industrial production locally.

It is generally argued that without DFI most developing and underdeveloped economies would lag behind industrial progress elsewhere and continue to be dependent on loans and donor aid.

Consequently, foreign corporates are encouraged to invest in countries where raw resources and labour are cheaper. These companies receive tax breaks and holidays. Tax breaks and tax holidays may accrue to both the company that is investing locally or to individual employees of such a company.

But in these arrangements and incentives often lie a series of problems for both the native country of the company doing the DFI and the country receiving the DFI. The theory is that the local economy should have a series of economic, technological, technical, managerial and product spinoffs from DFIs.

In some cases, the investments work leading to better skilled locals, improved products, technological and technical-know-how transfers. There could be better products. More diversified goods and services. The locals may enjoy better jobs and improved incomes.

In practice, though, even where there are significant benefits to the local economy, there is always a question mark about the income declaration and taxation of foreign corporates, especially in countries with poor tax regimes and practices.

What Corporate Taxes Under Pressure offers is a series of provocations on how to deal with multiple tax regimes and practices in different countries but which affect corporations with investments across international borders.

How is a multinational corporation (MNC) that invests in different countries and at different times affected by the (home and away) tax practices, bilateral and multilateral trade treaties, or even (international and domestic) financial regimes?

Considering that taxation practices may change without prior warning to the companies concerned, such as in a case when the government desires to raise income urgently, how are MNCs supposed to respond to such reality?

What should happen in a case where one country exploits a harsher tax regime in one country to incentivize companies to relocate to it?

If we shift attention away from corporates, how should countries go about taxing its residents who work or have invested abroad?

What should happen to the income of an individual whose company is located across the border from their home country, but who also works for the same company, earning a direct income, and dividends too at the end of the financial year?

If both countries wish to incentivize the individual and the company to continue investing in the foreign market (because her company will bring back profits to her home country as much needed foreign income; and because she has created employment in the foreign country), how do they treat the company income, the investor’s income, and the dividends the investor earns?

The broader question that Corporate Taxes Under Pressure raises and seeks to answer is: how can countries be prepared to deal with the complexities of international tax framework. This question is more urgent for poor countries, which often rely on DFI for economic growth.

How can they keep their markets open for foreign investments but still raise income from taxing the investors, fairly, in a manner of speaking?

Whatever way one looks at the question of corporate taxation, it will always be to the disadvantage of weaker, developing, or underdeveloped countries. Take the example of how difficult it may be to tax an MNC.

Theoretically, and more so because of easy financial flows across international borders, a company may be headquartered in the US (residence); manufacturing in Kenya (source), and selling its products, say jeans, in Taiwan (destination).

Such a company could have personnel in the three countries, all earning (actively or passively) from the company’s activities and sales. Now, consider that there are more than “3000 bilateral double taxation treaties” that govern how such a company may be taxed.

However, there are individual domestic tax laws and practices that will naturally overlap with the many bilateral (or even multilateral) treaties to which many countries are signatories. How does a country, say, Kenya, whose tax structure is still evolving deal with such a situation as described above?

Yet, consider that in the example we gave above we were dealing with tangible goods: jeans.

How does a country that is still at a lower stage of technological adoption and adaptation or capability deal with, say, financial products (think of fintechs) or digital products? How does one tax digital services, for instance, which, though offered locally are wholly delivered (and charged) from a source beyond the local borders?

It is undeniable that technological advancements and the easy flow of money across borders, has posed innumerable challenges to poor countries where it concerns taxing the incomes of multinational investors.

Technology makes it easier to transfer income across borders. The repatriated money can be invested in another country immediately, without much loss. Tax avoidance has, in fact, become a multimillion-dollar industry employing lawyers, tax experts, retired politicians and government employees among others.

They are aided by the fact that the global tax regimes and practices are generally aligned to the standards set by the OECD and the UN. Inevitably, poorer countries from the Global South enter the international tax(ation) order as poorer cousins of their counterparts from the Global North.

Despite the goodwill and sound advice offered in the pages of Corporate Taxes Under Pressure: Why Reform Is Needed and How It Could Be Designed, it can’t be lost on any reader or policy maker or taxperson from Africa, for instance, that it will take immense if not revolutionary effort to make the global financial and international taxation systems beneficial to poorer countries.

Tom Odhiambo teaches at the University of Nairobi. He can be reached at: tom.odhiambo@uonbi.ac.ke or +254720009155.

PHOTO CREDITS: Tax Justice Network

By

Chenai Mukumba and Rachel Etter-Phoya

Illicit financial flows punch holes in the public purse across the African continent. Over the past five decades Africa has lost in excess of US$ 1 trillion in illicit financial flows. This amount dwarfed Africa’s receipts of overseas development assistance during this period and also exceeded foreign direct investment into Africa.

Two-thirds of corporate tax abuse, which forms a substantial part of illicit financial flows, is enabled by member countries of the Organisation for Economic Co-operation and Development (OECD), which is the leading rule-maker on international tax. This was revealed in the biennial Corporate Tax Haven Index 2021 published by the Tax Justice Network. The index exposes how this club of rich countries has created a system that allows multinational companies to pay less taxes in the countries where they should with direct effects on developing countries’ tax revenues.

According to Lyla Latif, Managing Director of the University of Nairobi’s Journal on Financing for Development and Director of the African Centre for Tax and Governance, “African countries inherited a tax system put in place by some of the old powers assembled today as the Organisation for Economic Cooperation and Development (OECD)”. She explains that:

“This system, which is at play today, based its entire tax philosophy around mobilisation of taxable income, regardless of where it was sourced from resident countries. This, by design, embedded inequality within the international tax regime in which African states have become vulnerable and open to the scramble for tax. Such vulnerability expressed in the form of base erosion and profit shifting, is largely responsible for the removal of the provision of social services and welfare from the centre of the post-colonial African government’s fiscal obligation to its taxpayers.”

Transforming the current international tax system will go a long way to ensuring African governments can protect the rights of citizens and fill half of the financing gap to achieve the Sustainable Development Goals.