WHEN George Harrison penned ‘Taxman’, the opening track for the Beatles’ 1966 album Revolver, he cleverly tapped into the long held disdain for taxation.
The working-class Liverpudlian, freshly flush from the Beatles’ success, wrote the song in response to progressive tax measures introduced by the British government of the time.
The song skilfully reduced the very notion of tax neatly into the ’60s counterculture’s rejection of authority and exuberant embrace of freedom and autonomy. Although long before the Beatles – as far back as biblical representations – tax has often conjured an image of unscrupulousness and dishonesty.
Zacchaeus the tax collector, as the very embodiment of dishonesty and corruption, is but one notable example.
Sadly it is this proliferated incongruity – that tax is inherently unjust – that has led to the salient acceptance of large scale tax avoidance and tax evasion in today’s global economy.
It has also served to frame discussion around tax as a David-and-Goliath battle between citizens and overzealous tax authorities.
However, largely it is not individual citizens (though such cases often gain significant media attention), but immensely wealthy multinational corporations that benefit from exploiting sophisticated tax loopholes. Increasingly, it is developing countries that bear this burden and loss of resources from widespread corporatised tax avoidance.
In a startling irony, recent research has suggested that developing countries lose more money through tax loopholes, exploited by wealthy companies, than they collectively receive in development aid from wealthy countries.
Conservative estimates put this figure somewhere in the vicinity of US$160 billion being lost annually through just two types of corporate tax dodging amongst many.
Such wildly unjustifiable inconsistencies have provoked a worldwide movement working to shift the global conversation around tax issues with an endgame geared to engender fair and just globalised tax arrangements. Many working in this field view a fair tax system as a significant tool to resource developing countries to progress infrastructure, education and healthcare outcomes – all key factors in eliminating global poverty.
Dr Dereje Alenayeh is one individual who is working to redefine tax and the role it plays in society – particularly in regards to combating global poverty.
Dr Alenayeh is soft spoken yet assertive. He is one those people you meet that instantly convey a sense of dignity, purpose and a very high level of intelligence.
Born in Ethiopia, he left the African continent to study in Germany when he was 19 and now speaks German as well as English fluently. Today he is based in Nairobi, Kenya, as Christian Aid’s senior economic justice adviser working on tax in Africa and globally.
He also serves as chair for the Global Alliance for Tax Justice.
“I spend my time working with Pan African institutions like the African Union and the United Nations Economic Commission for Africa to promote some of the economic transformation agenda,” he said.
Dr Alenayeh was recently brought to Australia by the Commission for Mission to work with the Justice and International Mission unit to encourage the Australian Government to use its G20 Presidency to combat tax dodging by multinational companies. And notably to ensure developing countries benefit from moves to clamp down on tax dodging.
“Tax is fair and just when those who have more also contribute more,” Dr Alenayeh said.
“But in Africa, and in many developing countries, it is the reverse. The tax burden on the poor is increasing through Value Added Tax or as you call it here the GST. For example, in Kenya they have abolished the capital gains tax.
“So now you can buy an asset, sell it with 100 per cent profit and you will not be taxed on your profit – so there are lots of exemptions for the rich.”
The G20 membership comprises a mix of the world’s largest advanced and emerging economies, representing about two-thirds of the world’s population, 85 per cent of global gross domestic product and more than 75 per cent of global trade. It is these countries that have a significant role to play in tax justice issues.
“I am in Australia to help give a voice to the interests of developing countries and put demands on the G20; and for the Australian Government to use the G20 forum to facilitate some of our demands,” Dr Alenayeh said.
Tax justice can be a sticky issue. Particularly as so many of us are brought up trying to minimise the tax we pay and that minimisation is often seen as desirable.
Dr Alenayeh said it is not ordinary people trying to minimise their taxable income that is the problem.
“Ordinarily, people have no possibility of cheating on taxes. Those who are employed pay income tax through their payroll; it goes to the government before they ever see the money.
“Even small businesses have no possibility of doing massive tax dodging because they are also under the scrutiny of revenue authorities. Their economic activities are limited to what they pay-in and what they can earn is also easily assessable.
“The problem is with multinational companies who have cross-border operations. They can shift profit from areas where they have to pay taxes to areas where they have no obligation to pay taxes,” he said.
This method, known as transfer pricing, is a key tool utilised by corporations to avoid paying tax in developing countries – consequently robbing countries of resources sorely needed to fund education, welfare and infrastructure projects.
Dr Alenayeh stresses that businesses operating and profiting in a country have an obligation to contribute to that nation’s infrastructure.
“If you come to do business in a country you will not come with your own roads, you will not come with clerks, accountants and cleaners – you will have to find them.
“If the government does not have revenue how can that government put in place all of these services? If all this is funded through government expenditure and all of the facilities and resources businesses use have already been paid for you are not contributing to their upkeep or expansion. So that means you are a free rider.”
Although multinationals use significant resources and a range of sophisticated methods to avoid paying tax, some of the principles such as transfer pricing can be simply explained.
Large parent companies can ensure subsidiaries, operating in jurisdictions where tax is applied, technically run at a loss. This can be achieved by inflating costs of transaction between the subsidiaries while also capitalising on malleable tax laws in developing countries. So in this way other related subsidiaries operating in so-called tax havens can register high profits while paying little or no tax.
“There are different types of tax systems or tax rates for corporate income tax, jurisdictions where there is zero or very minimal tax to pay,” Dr Alenayeh said.
“So there are enablers in the global economy which can help corporations make losses appear in some countries and make profits appear in countries where you have no corporate income tax.”
Dr Alenayeh cites the example of SABMiller operating in Ghana as a compelling case study.
ActionAid research identified that a subsidiary of multinational brewing and beverage company SABMiller operated income tax-free in Accra for several years due to that business technically running at a loss.
This means that small independent businesses, such as street vendors, would pay more tax in the jurisdiction than the subsidiary of the multinational.
Such circumstances highlight the inconsistency of small businesses selling SABMiller products actually paying more tax than an arm of a large multinational corporation.
The sheer audacity of such methods provides a fairly bleak overview of global economics – particularly in light of development issues. However Dr Alenayeh says there are practical steps which could achieve genuine reform.
“For me it is divided into two. There is homework for developing country governments to do and there is a process which can and should happen at the international level,” he said.
“The international tax structure must be reformed to make it more redistributive and fair. This is a responsibility of individual countries’ governments.
“Revisiting tax incentives and having a proper investment policy is the responsibility of developing countries as well.
“But for resource outflows, tax dodging happens because of cross border transactions of multinational companies. It is necessary to have international reform – these are all things that can happen without costing any money and without building any new institutions.”
Many campaigners for tax justice increasingly note that there is widespread recognition of the existing problems. What must occur next is direct action and genuine reform.
“I think the economic argument is solved now – there is nobody arguing anymore that tax dodging is not taking place,” Dr Alenayeh said.
“The existence of secrecy jurisdictions and money laundering is well known. What is actually missing is the political will of decision makers – in short the problems are diagnosed, the analysis has been made.
“The rhetoric has also come into the high level leadership – the actions are what we are awaiting.”
Although there is a long way to go until effective measures are put in place to clamp down on the issue, many believe reform is moving closer and that a key step is the reframing of outdated and inaccurate perceptions surrounding the issue.
“The success we can talk about is that we have managed to bring these issues into the mainstream agenda.
“It is important that we are reversing the perceptions. Many people are increasingly aware that more resources are coming out of Africa than coming in.
“But it cannot be limited to civil society. It is about generating the political pressure in society to force politicians and decision makers to implement policy – this is where we should go now.
“We are all dependent on a well-functioning environment in every sense and it has to be functioning and supported by public resources.
“We must realise that tax is a contribution you make to be able to live in and support a humane society.”
By BEN GRUNDY AND CHIP HENRISS
The Uniting Church in Australia, Synod of Victoria and Tasmania, is a member of the Global Alliance for Tax Justice and the Tax Justice Network, as well as serving as the secretariat for the Tax Justice Network in Australia (TJN-Aus).
Illustration by Garth Jones – www.eldepositodelplatino.com