Tuesday, March 14, 2006

Tax in Africa

Another piece today by Alex Cobham states that the best way to set up an African welfare state is to re-organise rules on tax avoidance and tax evasion. He correctly states that such a system could not be organised within the aid system, but proceeds to commit all sorts of inconsistencies, irrelevancies and non-sequitors in an article that would be remarkable were it not for the fact that the Guardian always does this.

My research shows that a conservative estimate of the revenues foregone by poorer countries due to tax avoidance and tax evasion is $385bn (£221bn) each year.

Colour me sceptical on this. Not only is there deliberate elision between legal avoidance and illegal evasion, but there is no indication of what research this is. If he's relying on official Government statistics, well good luck. My experience of the developing world is limited to Africa, but there are simply no figures to provide this sort of information. It's hard to find a budget in most countries, certainly one more recent than five years ago, and as for quantifying tax avoidance? It's pretty hard to do that here, given that there isn't really a definition for it.

The inability of tax systems in rich countries to keep track of the income of high net-wealth individuals and the profits of multinational companies means that both of these groups are able to shift their tax liabilities to low-tax or no-tax jurisdictions.

Hurrah! The sweet, sweet smell of liberty! What Cobham means by high net-wealth individuals is presumably just people who can afford to pay an accountant to minimse liability. As long as tax rates are high enough to make such a move worthwhile, people will do it. The trick is to make tax rates simple and low, making such measures uneconomic.

They avoid paying their share of state spending in rich countries...

Given that most of these individuals will have used private education, private healthcare and private transport, I'm struggling to see how they're on the mooch.

For developing countries, what is important is the availability of tax-relevant information collected by rich countries and secretive tax havens jurisdictions that serve them.

The point about most tax havens is that they do not ask for, or acquire much of this information. This is because the definition of a tax haven is one that does not believe that governments have many rights over citizens. Why should they keep registers? What is it to do with them? Now, you can object to such small-state mentality, but it's best not to deny its existence.

It also means stripping tax havens of their ability to provide shelter for tax evaders - starting with the UK's own Crown Dependencies.

Over which the Government of the United Kingdom has no jurisdiction AS WE HAVE SEEN.

The rest of the article goes on to say that the structure of VAT style taxes in Africa have been regressive and encouraged black markets. But the real problem with African taxation is that the entire system is rotten from the top down. All direct taxation is administered by corrupt officials, collected by corrupt collectors and enforced by a corrupt judiciary. Doing business in the Third World is bloody difficult because of this.

The solutions proposed by Cobham entail, effectively, a good degree of harmonisation of global tax rules, including the abolition of tax havens. But the only way to do this would be by a new global Empire, devoted to enforcing its ideas on taxation and welfare. Since tax havens rely on their financial service sector for their existence the only way to change them would be by force.

Empire in the service of Free Trade was, in some ways, creditable. Empire in the service of statist harmonisation? I seem to remember something of the sort, though I don't know if this is what Cobhan had in mind.


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