The case of Caroline Muchanga, who paid more tax than the sugar company whose products she sold, shows the impact of tax avoidance on countries like Zambia
Earlier this year, world leaders agreed the new Sustainable Development Goals (SDGs), which aim to tackle poverty and deliver opportunity across the globe.
But changing the world doesn't come cheap. Ambassador Macharia Kamau of Kenya, one of the co-facilitators UN SDG process, has said implementing them could cost a staggering $3.5-5 trillion per year.
That's an astronomical amount of money, more than could ever be delivered by aid. Developing countries must be empowered to collect the taxes they need to end poverty.
Critical to this is tackling corporate tax avoidance, which blights the poorest countries in the world. IMF research estimates that developing countries lose $200 billion a year to big companies dodging tax, leaving key public services like schools and hospitals starved of funding.
In response a coalition of charities - ActionAid, Oxfam and Christian Aid - has developed a new report which offers companies practical suggestions for adopting a more responsible approach to paying tax. They want businesses to seize the initiative and take the lead on the public debate around tax dodging.
Corporate tax avoidance has come to the attention of the UK public via the likes of Amazon, Starbucks and Fiat: big companies which have been caught paying too little tax. Less familiar may be the tax avoidance which is harming some of the poorest people in the world.
People like Caroline Muchanga, a stall holder in Zambia who paid more tax than the British owned multinational Zambia Sugar. While she struggled to buy school books for the children, her corporate neighbour used clever tricks and tax havens to reduce its tax bill to near zero.
Ensuring a fair taxation system requires government-led reform: domestic and international leaders must take the bull by the horns and change the existing rules and institutions governing the international corporate tax system. The current regime is not only obsolete but unfair.
But this is only one part of the solution, and increasingly civil society is mobilizing to demand that companies align their economic interests with those of the public.
The timely publication of the discussion paper 'Getting to Good - Towards Responsible Corporate Tax Behaviour' by ActionAid, Christian Aid and Oxfam aims to assist business leaders to develop a more responsible approach to taxation. Rather than highlighting what companies should stop doing the paper offers concrete suggestions as to how firms can act more responsibly.
For example, companies can:
- Publish country-by-country reports to show how much tax they are paying in every country they operate in. If companies are regularly paying zero tax in particular countries this could point to tax avoiding practices.
- Publish the outcome of any significant deals that they reach with tax and revenue authorities. This would shine the light of transparency on what are currently private dealings.
- Assess and begin to address the human rights impacts of their tax behaviour. By depriving developing world governments of revenue, so too might companies be depriving them of the ability to provide fundamental rights such as education.
- Regularly audit their use of tax incentives and reliefs to ensure they are delivering investment, employment or other benefits to developing countries. If companies are getting tax breaks there should be a net benefit to the country they are operating in.
Perhaps more significantly the report suggests the need for a change of culture within multinationals, towards an acceptance that they can go above and beyond being legally compliant on tax.
Fundamental issues of fairness are at stake. Around the world, there is an increasing awareness that the existing corporate tax system is feeding historic levels of inequality, impeding the fulfillment of human rights, tearing the fabric of societies and endangering future economic growth. The stakes could not be higher - achieving the ambitious SDGs requires large corporations to contribute their fair share.
Tax avoidance is now scarcely out of the news, and many companies have faced huge reputational damage for playing fast and loose with the rules. Alongside the urgent reforms to regulation that are required, good businesses should recognise that they too must play their part. The world expects nothing less from corporations and their leaders.