Tax evasion hurting poor countries hardest, says report

By FRANKLINE SUNDAY

NAIROBI, KENYA: Developing countries are losing the most due to tax evasion by multi-national companies, a problem that shows no sign of letting up.

According to a new report by British charity organisation, Oxfam, multinational companies on average pay 5 per cent in corporate tax, while smaller companies within the same tax regimes pay around 30 per cent.

“In all OECD countries, the rates of return to private capital have soared since the 1980s and this has resulted in a worldwide trend of rising corporate profits as a share of the economy. This means that developing countries are losing out on crucial development finance since income tax contributions are constrained.

“Multinational businesses are shifting profits or otherwise structuring cross-border transactions to avoid their tax liabilities,” states the report.

“The same companies are securing unfair tax incentives from governments bidding to attract foreign investment.”

According to Oxfam, the amount of unpaid tax liability faced by companies operating in developing countries including Kenya is estimated at $104 billion every year.

This is excluding $138 billion that governments in these countries are giving away each year in statutory corporate income tax exemptions.

TAX CODES

“These losses combined could pay twice over the $120 billion needed to meet the Millennium Development Goals (MDGs) related to poverty, education and health,” states Oxfam.

In Kenya, the existing tax codes have been faulted several times by financial experts and the process of altering the same and introducing fair tax policies has so far remained a pipedream.

This is despite the fact that tax incentives and exemptions, some of which date back thirty years ago, are estimated to have denied the country over Sh200 billion in foregone revenue over the past decade alone.

The burden to fill up the deficit has fallen on Kenya’s middle and low -income earners – consisting of the majority of the population – who are considered the low hanging fruit paying taxes on both what they earn and what they spend.