Thursday, November 12, 2009

South Africa’s finance minister calls for tax crackdown

TJN's director, John Christensen, was in a meeting at the UK House of Commons described by the FT:

"Pravin Gordhan, South African finance minister, has called for a crackdown on tax avoidance and evasion by multinational corporations, arguing the use of such tactics is draining essential revenues from developing countries.

Addressing a British House of Commons committee on Monday, Mr Gordhan deplored the current “catch me if you can attitude” of multinational companies. He warned that the global community needed to introduce more consistent and effective taxation systems."

Blowing our own trumpet, we know, but at the meeting Gordhan and other speakers praised TJN for its work in raising the issues. Also:

"Mr Gordhan yesterday argued that tax evasion and aggressive tax avoidance, or legal efforts to reduce tax bills, drains developing countries of essential revenue needed to assert their “fiscal sovereignty, [which is an] indispensable part of nation-building”.

He said that there was a “direct relationship” between an increase in tax revenues in developing countries and the creation of the sort of sustainable institutional infrastructure essential for good governance."


Which is crucial to remember. Read more on this here.

Gordhan noted that the ANC government in South Africa inherited a fiscal deficit of 8% of GDP in 1994, and has turned this into a surfeit of 1% or so. Until the government initiated its programme tackling tax evason, the attitude among most South Africans was: pay if you want to.

There has been a huge effort towards engineering a comprehensive philosophical reorientation towards taxation, and had emphasised a three- part compliance model: first, educating public about the importance of tax; second, providing better services to the public, and third, creating an effective enforcement arm. Civil society, he noted, had been instrumental in helping change the culture of taxpaying, a central component of the citizen-state relationship.

Crucial to all of this is the strength of political will and support for the tax department. It is very difficult to change the culture of taxpaying if politicians themselves don’t support this change.

Getting close to a surplus is a crucial political issue for a developing country: Gordhan noted that once a budget surplus is achieved, with a solid tax base, this leads to self-sufficiency which then seems to lead on to greater self-respect, and protects countries against being dictated to by suc outsiders as the IMF: it restores countries' sovereignty and helps them set their own own policies. In short, fiscal policies are an indispensible part of national self-determination.

As Michael Waweru of the Kenya Revenue Authority said two years ago:

"Pay your taxes, and set your country free.

Gillian Tett of the Financial Times chaired the meeting, and because Britain's Conservative Party declined to take part, the role of political opposition fell to Britain's forward-thinking Liberal Democrats. According to Lord Oakeshott, Liberal Democrat policy specialist and a pension fund manager, British companies are world leaders in aggressive tax schemes. People do not put their money into Aruba or Cayman because they are centres of excellence for fund management: no, they go for the opportunities for tax tricks.

The next major item on the African tax agenda is the African Tax Forum meeting in Kampala on November 19th. See more about that here.

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