THE BLOG

How Corporate Tax Dodging Robs The Poor

29/08/2012 15:10 BST | Updated 28/10/2012 09:12 GMT

Every country needs tax revenue in order to build hospitals, maintain roads and pay teachers. The recent news that the UK Government had to borrow an extra £600m to cover a shortfall in corporate tax receipts shows just how vital this income is.

In a developing country like mine, Zambia, the need for this money is even more vital. Life expectancy is 48, adult illiteracy is at 35% and the infant mortality rate is nearly 20%. On top of that we are also suffering the effects of climate change, water-borne diseases and malnourishment.

The good news is we have large copper deposits in our country, a valuable natural resource which is in demand around the world. By selling the copper, or the rights to mine it, to wealthy multinational companies we could reap the tax revenue from the profits these mining companies make in our country.

That's how it should work and if it did we would be in a position to start tackling some of these social problems and grow our way out of poverty.

Sadly, despite our natural resources being plundered by international mining companies, Zambians hardly see any of the benefits. Because of clever accounting methods and by exploiting legal loopholes some multinational companies are able to artificially shift their profits into tax havens. By making it look like their profits are made in tax havens, where the tax rates are almost zero, they can avoid paying tax in the country where the activity actually took place, such as Zambia.

One of the ways this is done is by an illegal manoeuvre called transfer mispricing. Some of these multinationals are so large they can have one subsidiary, say a mining company in Zambia, which can sell its copper to another subsidiary based in a tax haven at a rock bottom price. This makes the mining company look unprofitable and thus slashes its tax obligations to the host country. The subsidiary in the tax haven is then able to sell it on at a profit and pay hardly any tax. Ultimately, the profits all go back to the umbrella company but the country which provided the copper is swindled out of the tax it is owed. It is estimated that developing countries lose more than $160 billion a year from tax dodging by multinational corporations - more than they receive in aid.

Last week the UK's International Development Committee published its report following an investigation into the effect tax dodging has on development. They strongly urged the Government to push for companies to report their profits on a country-by-country basis so that citizens and tax authorities would be able to hold them to account.

A recent ComRes poll, commissioned by Christian Aid, revealed that 56 per cent of British adults recognise tax dodging as morally wrong. Three quarters (74%) felt that David Cameron should be demanding international action to tackle the problem but only 38% believed the Government is genuine in its desire to tackle it.

I am in the UK to take part in the Tax Justice Bus tour, a campaign led by Christian Aid and Church Action on Poverty, to share the message of tax justice with the UK.

David Cameron will chair the meeting of the G8 next year in the UK and have an opportunity to set the agenda. The public will for action is there and now MPs from all parties have identified the problem and pressed for measures to be taken. I ask the Government to listen and help put an end to this scandal of tax dodging.