The Blog

The Bitter Taste of Tax Avoidance

Caroline Muchanga showing her market stall tax receipt

Mazabuka is known as "the sweetest town in Zambia". The town's other source of fame, industrial scale tax avoidance, leaves a rather more bitter taste.

Rich in sugar, but blighted by malnutrition and poverty, Mazabuka sits at the heart of an electronic web of transactions, loopholes and tax breaks.

Two years ago, during the UK presidency of the G8, David Cameron pledged tough action to tackle tax avoidance. Tonight, in Lima, Peru, long promised reforms will be presented by finance ministers, including the UK's George Osborne. They fall far short of what developing countries need. The global tax system needs major surgery, instead we're getting a sticking plaster.

Tax avoidance, a clever game of sleight of hand played out on corporate spreadsheets, drives poverty and sucks funding from crucial public services like healthcare, schools and sanitation.

Women like Caroline Muchanga, a mother of three who runs a market stall in the town, are on the front line. She works seven days a week, 15 hours a day. At her small kantemba (market stall) she sells drinks, toiletries and foodstuffs, including bags of the 'White Spoon' sugar that is produced on Zambia Sugar's vast plantation and factory less than a kilometre away. On a good day Caroline makes ZK20,000 (about US$4).

Her profits are never enough. She has to pay a tax levy of ZK30,000, as well putting aside money for rent for the stall, home and food. Not everyone sees their finances stretched in quite the same way.

A stone's throw from her stall sits the headquarters of Zambia Sugar, a subsidiary of UK food giant Associated British Foods. ActionAid's groundbreaking report, Sweet Nothings, revealed that between 2007 and 2012 Zambia Sugar paid less than 0.5% of its $123 million pre-tax profits in corporate income tax. Between 2008 and 2010, the company paid no corporate income tax at all.

The IMF estimates that developing countries lose $200 billion per year in tax revenues to tax avoidance. That money should be fighting poverty instead of lining corporate coffers.

Dailess Mwiinga sees the effects first hand. runs a nutrition workshop for mothers at Nakambala Urban Health Clinic, Mazabuka. The clinic inspects nutrition and umbilical cords and also enrolls women into cooking programs. The situation is difficult, "the children always appear to be malnourished, underweight with swollen bodies," she says.

Malnutrition is a chronic problem in the area "about two children die per month" said Dailess. She believes that if the government was better at getting tax from companies like Zambia Sugar then they will be able to pay for better healthcare and education.

Yet, as a new report from ActionAid sets out, the package of international tax reforms being presented by the G20 will fail to fully tackle industrial-scale tax avoidance by multinationals and will not deliver the step change that is needed for the poorest people in the world.

Drawn up by a club of rich countries in the OECD and G20, with limited consultation of the rest of the world, the reform process was doomed from the beginning. While the UK did push for some modest engagement with poor countries, it blocked stronger efforts for poor countries to have a greater say.

Developing countries called for tax reform talks to be shifted to the United Nations. That avenue was swiftly shut down. Decision making is being kept in the hands of a select group of rich countries. The failure to address fundamental problems like taxing rights and tax competition means the global tax system will remain unfair, with poor countries losing out.

We should be proud the UK gives so much in international aid, but to find a sustainable route out of poverty developing countries must be given the tools to unlock the tax billions they are owed.

2015 is a historic year for development. The recently agreed Sustainable Development Goals will drive global efforts to end poverty, get children into school and empower women and girls.

But it's one step forward, two steps back. The UK has backed an unfair global tax deal that shuts out women like Caroline.

We need to be much more ambitious on tax. It is only then that poor countries will be able to free themselves from aid and stand on their own two feet.