ActionAid seeks review of tax treaties to reduce inequality, poverty

TaxWorried by the outrageous scale of global tax avoidance and use of tax havens by the super rich and global companies, as revealed in the Panama Papers investigation, ActionAid, has urged the Federal Government to revisit tax agreements with investors and multinationals.

According to the international development organisation seeking end to inequality and poverty, tax avoidance takes billions of dollars away from vital public services every year, and world’s poorest people are suffering as a result.

In its recent report on tax power, ActionAid said: “Tax is powerful. It funds schools and hospitals everywhere. We all pay tax, but right now, big companies aren’t paying as much as they should in developing countries. Global scandals such as the leaked confidential documents from Panama law firm Mossack Fonseca have revealed the outrageous scale of global tax avoidance and use of tax havens by the super rich and global companies.

“The Panama Papers investigation revealed how international oil company Heritage Oil avoided US$400 million of tax by exploiting loopholes in Uganda’s tax treaty with the island tax haven of Mauritius”.

According to ActionAid in its latest report, tagged, “Mistreated”, global corporations use tax treaties to limit their tax contributions in the developing countries where they generate profits, adding that tax treaties that aggressively lower tax contributions in these countries are harming revenue collection and their rights.

ActionaAid noted that while developing countries continue to experience laxities in their tax treaties, developed countries rely heavily on revenue from capital gains tax.

“The UK raised £5.8 billion (US$8.8 billion) from capital gains tax in 2014. This provided enough money for the UK to pay all of the costs of world-class maternal health care for two million women. Not all developing countries collect capital gains tax, and those that do often collect it on only a limited class of assets. When they do though, it can have an enormous impact”, it added.

While Nigeria, Rwanda, South Africa, Zambia, Malawi and Mongolia have all recently either cancelled or renegotiated tax treaties, the report noted that a lot still needs to be done as more than half a billion dollars allegedly left from Nigeria to Dubai in payments for royalties, management services and technical fees from a multinational company.

The agency identified the three tax rights that urgently need to be restored to include profit tax, withholding tax and capital gains tax. “Under profit tax, tax treaties set the rules about how established a foreign multinational has to be before it pays tax on its profits. This has led to absurd results, such as some foreign corporations employing thousands of people without having any liability to pay local profit taxes.”

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