Oxfam is calling for world leaders meeting at the G20 summit in St. Petersburg later this week to rewrite tax laws that currently allow companies to underpay taxes owed to African countries. Oxfam
says this form of tax evasion costs African governments an estimated $38.4 billion per year, or more than half of what governments in sub-Saharan Africa spend on health care.
Oxfam says that African countries are losing almost two percent of their gross domestic product (GDP) each year because of what it calls a “broken tax system” that allows multinational corporations to avoid paying taxes in the countries where they actually do business.
"We know that developing countries are losing hundreds of billions of dollars every single year, and that’s money they could be spending on health care or education. And it is rich companies, big multi-national companies, that are sucking this money out of their economies," says Emma Seery, the head of Oxfam’s Development Finance and Public Services.
Seery said that much of this lost revenue is due to a practice known as “profit shifting,” in which companies carry out their work in developing countries, where the cost of operating a business is generally low, but then register their earnings elsewhere, in non-tax jurisdictions.
"For instance, there are tax rates in the Netherlands, which are very low, and often companies only pay a small amount of tax when they actually should being paying the tax, in say, Zambia or Burkina Faso. And they can also move money or shift their economic activity on paper into tax havens, which are shrouded in secrecy and places where we are not able to see any information about who pays what tax and whether they are paying the right amount," she said.
Oxfam says the 19 countries, plus representatives of the European Union, who meet periodically as the G20, have the power to work with the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD) to close the loopholes in global tax laws that make this kind of tax evasion possible.
G20 finance ministers endorsed a plan to cut down on corporate tax evasion in July and are expected to discuss the issue at this week’s summit in St. Petersburg.
Oxfam says developing countries, including those in Africa, are currently excluded from negotiations at the G20 about global tax law reform, but need to have a seat at the table.