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Sweet Nothings: The Human Cost of Tax Avoidance in Africa

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Tax avoidance doesn't just damage the UK. It hurts ordinary people across the globe, wherever they live. A new piece of research by ActionAid has shown the activities of one British food company to be leeching vital funds from Zambia, one of the world's poorest countries.

The UK public is finally getting angry about tax avoidance. In a time of public spending cuts to precious local service like hospitals and libraries, it is infuriating that companies like Starbucks, Amazon and Google think that a different set of rules applies to them when it comes to paying their way compared to every other business or working person. Over in Africa, the situation is even more stark.

As you may have seen in the press, ActionAid's new report looks at the tax affairs of multinational and FTSE 100 company, Associated British Foods (ABF). You probably have some of ABF's products on your kitchen shelves - brands like Silver Spoon sugar, Ryvita and Kingsmill. They also own clothes chain Primark.

The ABF group's sugar operations in Zambia has generated profits of US$123 million since 2007, yet in its own words it has paid "virtually no corporate tax". Instead, through a complex web of tax avoidance structures, it has deprived Zambia of some US$27 million in tax receipts. All of the company's manoeuvrings are legal - but in a country where two thirds of the population live on less than US$2 a day, they are deeply immoral and completely unjust.

The lengths that the company has gone to in order to achieve this are quite staggering. It has siphoned a whopping US$83.7million (one third of pre-tax profits) out of Zambia into tax havens including Jersey, Ireland, Mauritius and the Netherlands. This includes shipping a hefty US$50million to Ireland in "purchasing and management fees" since 2007. All very well, except according to the company's accounts, they have no employees in Ireland. So who is doing the work that they are paying the fees for? They send US$3million a year to a subsidiary in Mauritius whom they pay for "export agency commission". Yet they have just one employee in Mauritius. Perhaps most galling of all, the FTSE 100 company took the Zambian Government to court to get access to a tax break that was designed to help Zambia's smallest farmers.

This is not victimless financial engineering. In Zambia, 45% of children are malnourished and one third of child deaths are related to malnutrition. The taxes Zambia loses to ABF in a single year could cover the entire cost of interventions needed to help end child malnutrition in that country. The revenue lost to tax havens alone could pay for an additional 48,000 Zambian children to go to school every year.

Companies that avoid paying their dues are playing us all for fools. Ordinary people pay the price and the poorest suffer most when there is not enough money for schools and hospitals in developing countries, or to fund the basic public services that we need here in the UK.

Change is needed in three areas. First, multinational companies must accept that paying their fair share of tax is part of their core business responsibilities. Second, George Osborne needs to heed the advice of the OECD, IMF and UN and amend UK tax rules in the Budget this year so that British companies have to spill the beans on their tax avoidance from poor countries. Third, when David Cameron chairs the G8 Summit in the UK this June he must deliver a landmark global tax and transparency treaty that forces an end to the harmful secrecy offered by tax havens.

Businesses can and should be a force for good in Africa but this is massively undermined when they don't pay their way. If it is ever to be possible for developing countries to end their dependence on aid then tax avoidance by companies like Associated British Foods must end. Small businesses don't have the option to play the tax system. ActionAid met Caroline Muchanga, a market trader who works next door to Associated British Foods' sugar plantation in the town of Mazabuka. She sells one of their products, White Spoon sugar. On a good day Caroline makes ZK20,000 (about US$4) but in some years she has paid more business tax than Zambia Sugar. She cannot afford to pay for school books or uniforms for her children and sometimes they go to bed hungry. Caroline told us:

"Our profits are never enough to supply us with good food at home... We feel so bad because the Zambia Sugar Company does not pay tax, and for sure we are suffering."

When it comes to tax avoidance, the time for political handwringing is over. Now we need action.

Around the Web

ActionAid explain how they exposed tax avoidance by a British ...

British firm 'avoids paying tax' in Zambia - Africa - Al Jazeera English

British Sugar Giant Accused of Tax Avoidance - IBTimes UK

Zambia Says Tax Avoidance Led by Miners Costs $2 Billion a Year ...

Zambia : Zambia sugar plc subsidiary of Associated British Foods ...

Sugar manufacturer Associated British Foods avoids paying corporate tax in ...

British sugar company accused of tax avoidance

Bill Nighy: tackle tax avoidance to put an end to world hunger

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