The Paradise Papers like the Panama Papers have yet again exposed the iniquities of tax havens. Zambia like several other African countries has not been spared the injustices and harmful impacts of tax dodging.
A media sweep on broader issues of transparency and accountability in Zambia shows that mismanagement and corruption are hardwired in the country’s financial and procurement systems. Zambian citizens have heard with frustration a litany of complaints about tax avoidance by high net worth individuals and corporates.
This is in addition to the shocking
annual Auditor General’s revelations of a wasteful and inefficient public service. These malpractices are compounded by a lack of prioritisation in how the country’s meagre public resources are used. A case in point is the procurement of fire tenders, ambulances and the construction of the Lusaka-Ndola dual carriageway. Citizens are also frustrated that recurrent scandals and abuses fizzle out with little repercussions for perpetrators. Seldom has there been any kind of legal consequences for most of these corporations and politically exposed individuals in and outside government responsible for mismanagement of the nation’s resources.
The iniquities and implications of such a damaging and rogue system are widespread and immense. These abuses are both the root of sustained inequality and an important obstacle to
poverty reduction. For instance, a staggering 30% of rich Africans’ wealth – a total of $500bn is held offshore in tax havens. These rich Africans are using the global network of tax havens to hide about $14bn a year in taxes. At the same time, corporations have been estimated to prejudice Africa of $38bn annually in lost tax revenues. These figures when taken together with other resources lost illicitly, dwarf the annual aid flows to Africa.
Such revenue losses compound problems of mounting and unsustainable debt, tightened spending on health, education and social protection. The implications this has on the poorest in society especially on women and girls who are often left to pick up the pieces own their own are significant.
When the public financial and procurement systems are dysfunctional; high net worth individuals and corporates take advantage of porous taxations systems to deprive government of due taxes, public resources are lost to corruption and it is the poorest people that pay the price. Poor people’s tax bill rise as government tries to bolster tax revenues, and with little public support the poor must dip into their own pockets to access essential services like health and education.
The money lost by African governments a year is enough money to pay for healthcare that could save the lives of 4 million children and 200 thousand mothers and employ enough teachers to get every African child into school.
In the context of Zambia, loss of significant tax revenues and unregulated public spending have resulted in excessive debt and alarming contraction beyond sustainable levels.
The Financial Integrity Report 2015, as quoted by the Financial Intelligence Centre of Zambia, on illicit financial flows, Zambia is estimated to be losing an average of US$2.8 billion per year, through financial flows, while current the debt borrowing stands at about 47% of GDP.
Oxfam in Zambia notes with sadness that these malpractices are not isolated systemic and happen in a context of a
constrained civic space where citizen’s rights to exercise their voice are being clawed back.
These scenarios are tantamount to auctioning the country and the country’s resources to elite capture.The sense of impunity is dramatically affecting citizens’ trust in the rule of law and role of the State. It is also in the country’s interest to safeguard some economic gains recorded over the years. Much can be done by government in collaboration with civil society and citizens.
Government needs to close tax leakages. This could be done byensuring tax reforms that make tax systems more water-tight and by re-considering tax incentives, double taxation agreements (DTAs) with tax havens and offshore jurisdictions.
Prevention of wasteful and irregular public expenditure should be a top priority forgovernment as part of its strategies for poverty and inequality reduction. This means that unfair and abusive practices should not only be called out, but sanctioned.
Government and oversight institutions must be agile, consistent and efficient in dealing with all unfair and abusive practices.
Oversight institutions that are tasked with ensuring transparency and accountability in the utilisation of public resources must be strengthened to ensure that they are able to
effectively execute their mandate independently, and without fear or favour.
Zambia needs to implement recommendation by the High-Level Panel on Illicit Financial Flows by maintaining registers for beneficial owners of companies, strengthening
corporate governance and financial related laws as well as enactment and effective facilitation of access to information by citizens. Oxfam is calling on all public leaders to work together, to ensure that recent revelations of misuse and illicit externalisation of resources are acted upon.
We are calling on citizens to become a unifying force for change that leads to improved livelihoods for Zambia’s men and women, so that Zambia’s wealth and growth can benefit all rather than fanning further inequality. Oxfam is committed to offering practical solutions. We are committed to creating convening spaces for dialogue to challenge harmful tax give-aways and other forms of mismanagement of public finances.