The ugly face of capitalism gets uglier

HARARE - Edward Heath, the late British prime minister is credited with coining the phrase “the unacceptable face of capitalism” to describe Lonrho’s Tiny Rowland back in 1973.
 
How it morphed into (if there is any connection at all) the now commonly used “ugly face of capitalism” I am not too sure but capitalism has always been ugly and is getting uglier.

Earlier this month the charity organisation ActionAid published a report accusing British sugar company Associated British Foods (ABF) of tax avoidance.

The report, titled “Sweet Nothings — The Human Cost of a British Sugar Giant Avoiding Taxes in Southern Africa” accuses Zambia Sugar, the company’s Zambian unit of prejudicing the government of $17,7 million in taxes since 2007 when the British company acquired a majority stake in South Africa’s Illovo Sugar Group.

But the British company did pay taxes during the period in question; ABF paid all of less than 0,5 percent of its $123 million pre-tax profits in corporate income tax — averaging under $90 000 a year.

The main corporate tax rate in Zambia is 35 percent. The company took the government to court to win a special retrospective tax break in 2007 and received a large refund of tax paid in earlier years.

Between 2008 and 2010, Zambia Sugar made no corporate income tax payments at all.

The fact that they paid a derisory something is why they stand accused of tax avoidance rather than tax evasion. Tax avoidance is the process whereby an individual or company plans his or her or its finances so as to apply all exemptions and deductions provided by tax laws to reduce taxable income.

Tax evasion is the employment of unlawful methods to circumvent the payment of taxes.

Tax evasion is a crime; tax avoidance is not.

It is why ABF robustly denies the charges. A statement on the company’s website justified the company’s activities; “We deny emphatically that Illovo is engaged in anything illegal, immoral or in any way designed to reduce the tax rightly payable to the Zambian government. We are very proud of Zambia Sugar and the major contribution that it makes to the Zambian economy.

Since 2008 Illovo has invested $234 million to double the production capacity in Zambia and so create the largest sugar mill in Africa. This mill and related activities provide employment for more than 5 000 people.”

The statement accuses ActionAid of trying to “mislead”; "We have responded in a transparent and detailed manner to ActionAid and despite this they have produced a report written in inflammatory language that is designed to mislead."

Indeed, ABF broke no law but then there is the moral aspect which is where it all gets ugly.  

ActionAid’s investigation found that ABF’s Zambian subsidiary uses an array of transactions that have seen over a third of the company’s pre-tax profits — over $13,8 million a year –— paid out of Zambia, into and through tax haven sister companies in Ireland, Mauritius and the Netherlands.

Some of these transactions, the report adds, reduce Zambia Sugar’s taxable profits, while the structure of others avoids the Zambian taxes ordinarily levied on such foreign payments themselves.

Because of this “financial engineering” ActionAid estimates that Zambia has lost tax revenues of some $17,7 million since taking the Illovo sugar group.

And it gets uglier. ActionAid explains what this all means for Zambia, a poor developing country where over a third of child deaths are related to malnutrition. The charity group estimates the tax haven transactions of just this one British headquartered food multinational have deprived the Zambian public purse of a sum over 14 times larger than the UK aid provided to Zambia to combat hunger and food insecurity in the same period.

ActionAid also says the special tax breaks received by Zambia Sugar — which it estimates will in future years reduce the company’s tax bill by at least $3,6 million a year and rising — and the foregone tax revenues in a single year could likely cover the entire cost of the interventions needed to tackle child malnourishment in Zambia.  

The charity organisation estimates that the amount of tax the Zambian government currently foregoes through the company’s tax haven transactions is enough to put an extra child in primary school every 12 minutes.

 As the ActionAid report underscores, ABF is just one company taking advantage of tax breaks afforded to companies to attract investment not only by poor developing countries but by over-developed countries as well.  

ActionAid explains why taxes are vital; “…taxes pay teachers. Taxes train nurses. Taxes maintain roads, deliver medicine, and provide clean water.

This is as true in the developing world as it is in the developed world. Tax is the most important, sustainable and predictable source of public finance for almost all countries.”  In a nutshell, tax avoidance arrests development.  

The ActionAid exposé says tax receipts in African countries are on average around half those of developed countries.

In Zambia’s case, “the tax take has steadily declined relative to its growing economy.Due to the growth of its economy, Zambia has been reclassified from “low-income” to “lower-middle-income.”  

Despite this “upgrade” the World Bank says over two thirds of Zambians subsists on less than $1,25 per day.

Up north in the countries that created capitalism the disgruntlement against tax avoidance is getting ever louder.

The British government has been ranting against American coffee shop chain Starbucks, online retailer Amazon and search engine Google who are being accused of “immorally” minimising their British tax bills by that country’s Public Accounts Committee. - Ish Mafundikwa

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