“The
G20 cannot afford to miss another opportunity to end illicit practices like tax
evasion, transfer mispricing and capital flights that multinational companies
engage in. These practices are stifling the ability of developing countries
especially in Africa to finance development that trickles down to the poor.”
The
subject on transparency in the extractive industry has extensively been
discussed. The campaign drive for transparency in the past decade to make
contracts and revenue flows in the oil, gas and mining industry open has been
intense. Global transparency campaign has succeeded in prompting and
facilitating historic reforms that seek to fade out secret deals especially in
the extractive industry. The G8 in its recent meeting joined the fight but with
not too impressive outcome. The G8 put forward measures to clamp down on tax
evasion and illegal capital flights which thrive in ‘darkness’. David Cameron
indicated in June that the time had come to
insist on greater transparency from resource-extracting companies, in order to
“lift the veil of secrecy that too often lets corrupt corporations and
officials in some countries run rings around the law”.
But
the results have still been modest. That there are still billions of dollars
being lost through tax avoidance and evasion must be the concern now. On
September 5 and 6, leaders of the G20 are expected to agree on, inter alia, a
reform to fight evasion by multinational companies. Of course, there could be
no right time than this particular moment. The issue at hand is staggering.
This is no politics. It is about denying both developed and developing
countries the opportunity to finance development. In this discussion,
developing countries and those in Africa in particular receive the most
attention. Why? The Global Financial Integrity indicates that developing countries between lose an estimated $100
billion to $160 billion annually to corporate tax dodging.
Africa
is known to suffer the most from tax evasion and transfer mispricing. Africa is
hard hit. The Africa Progress Panel, chaired by
Mr. Kofi Annan, in its report “Equity in Extractives: stewarding Africa’s
natural resources for all” this year gives worrying details. Africa between
2008 and 2010 lost US$38.4 billion through transfer mispricing and illegal
capital flights. This together with corruption and mismanagement makes the
situation grievous. Governments are increasingly worried. There is growing
public discontent regarding these illicit practices that deny people from
deserved benefits of development. The G20 Summit in St. Petersburg, Russia ought
to deal with the challenge. And there are economic reasons for this.
The extractive industry in Africa is mired in very disturbing
paradox. Extensively rich
in all kinds of natural resources, Africa still struggles to improve the lives
of people. Livelihoods of people have even
worsened in these resource-rich countries. Even scandalous is that the right
amount of revenues from oil, gas and mining do not reach these governments. Tax
evasion, transfer mispricing and other illicit financial practices by
multinational extractive companies to evade taxes are to blame.
Transparency, to begin with, must precede all reforms aimed
at stopping tax evasion and transfer mispricing commonplace in the oil, gas and
mining sectors. These illicit practices by multinational companies only survive
in opaque environments. In this sense, there is no denying that global reforms to
leverage transparency have been groundbreaking. What are these reforms? In the United
States, there is the 2010 Dodd-Frank Act. Though this act is being challenged
in court by the American Petroleum Institute (API), the largest U.S trade association for the oil and natural gas industry,
the Dodd-Frank Act has succeeded in driving other reforms elsewhere. The
European parliament this year passed a legislation compelling oil, gas and
mining companies to publish payments they make to governments. The parliament
issued new transparency rules in the EU Transparency and Accounting Directives.
Under this directive, European companies are mandated to publish payments of
more than €100,000 made to the government in the country in which they operate,
including taxes, royalty payments, and licence fees.
In Switzerland, the Federal Councilor announced in June this
year transparency draft law for the entire Swiss commodities sector. Berne
Declaration, a Swiss-based NGO, indicates that the extractive activities of all
major Swiss commodity companies will most likely be covered by EU and/or U.S.
regulations. Aside from these, the Extractive Industry Transparency
Initiative (EITI) has encouraged countries especially in Africa to sign up to
standards in reporting revenues from oil, gas and mining industries. These
reforms have direct bearing on practices in Africa’s extractive industry.
But more needs to be done. Here leaders of the G20 have to
take the challenge. Reforms that have happened so far need to be built upon. It
is in this transparent environment that broad tax reforms can be instituted. Further
reforms to stop tax havens that support activities of companies are needed. The
automatic exchange of information set out by the G20 must take into account the
conditions in Africa. Critical today is bringing together large partners that
will undertake a standardised model that tracks activities of multinational
companies. Of course, isolated reform will achieve modest results. This
underscore why Africa, which hosts major operations of these companies, must be
brought in.
For far too long, transparent and efficient global tax system
has not been given the needed attention it deserves. The G20 cannot afford to
miss another painstaking opportunity to end illicit practices like tax evasion,
transfer mispricing and capital flights that multinational companies engage in.
These practices are stifling the ability of developing countries especially in
Africa to finance development that trickles down to the poor. Developed
countries as well are affected. Little or no reform to combat tax evasion and
transfer mispricing will not only be disappointing but akin to the G20 condoning
these practices that exploit developing countries. Stricter reforms with broad
implementation strategies must be envisioned.
These reforms promote the good governance that Africa needs. But
it must be acknowledged that transparency and tax reforms cannot provide the
quick-fix to the menace in extractive industry in Africa. Governments must take
the huge responsibility. The Revenue Watch Institute’s 2013 Global Governance Index
which measures transparency and accountability in oil, gas and mining sector of
58 countries worldwide reveals that vast majority of countries surveyed fail to
meet satisfactory standards in how natural resources are governed. Of the
countries categorised as ‘failing’, majority (8 out of 15) is from Africa. They
include among others, DR Congo, Mozambique, Cameroon, Libya, and Equatorial
Guinea. These standards are exactly what promote good governance of the
extractive industry. Governments must strive to improve these governance
structures.
Thus internal governance and institutional structures must be
given the boost. Taxing systems in Africa must understand the way international
tax jurisdictions operate. The capacity of tax authorities must be enhanced for
better appreciation of the global tax system. An extractive industry that contributes
to equitable and sustainable development and that fights poverty for both today
and future generations is what is ideal for Africa. For their part, leaders of
the G20 must break this affinity with secrecy that emboldens multinational
companies to avoid their simple obligation of paying the right taxes to
governments. Essentially, all stakeholders must be held into account.
BY: Stephen Yeboah. He is an academic researcher with
experience in agriculture and natural resource governance in Africa. He
currently studies at the Graduate Institute of International and Development
Studies in Geneva. [Email: profstephenyeboah@gmail.com]
