Thursday, November 22, 2007

Kulipa Ushuru ni kulinda Uhuru

This headline refers to a Swahili slogan chosen by the revenue authority of Kenya. It means "Pay your taxes and set your country free." In the words of Michael Waweru, commissioner-general of the Kenya Revenue Authority, "present taxpayers are taking a leading role in freeing their country from donor dependency to economic independence."

As the Financial Times reports today, only five percent of Kenya’s budget is funded by international donors – compared with 50 per cent for some neighbours – and Mr. Waweru said its annual revenues will have more than doubled since he was appointed in 2003 to clean it up. The year to next June would mark a fifth consecutive rise in annual receipts. Waweru sees the KRA’s role as reducing that figure further.

“People in this country value independence. It was one of the earliest in Africa to engage the British government in a war for independence,” he said. “Our motto touched some raw nerves in taxpayers and they have responded well.”

Tax is the sustainable source of finance for development. The long-term goal of poor countries must be to replace foreign aid dependency with tax self-sufficiency. Action on tax has the potential to deliver gains to poor countries that are orders of magnitude greater than what can be achieved with aid.

To meet the Millennium Development Goals, OECD countries have been urged to raise their levels of aid to 0.7 percent of Gross National Income – but this is as nothing when compared to potential tax revenues: in many rich countries, tax constitutes 40-50 percent of GDP. What is more, tax is the nexus between state and citizen, and tax revenues are the lifeblood of the social contract: the very act of taxation has profoundly beneficial effects in fostering better and more accountable government.

Developing nations in Africa, Latin America and elsewhere are especially vulnerable to the offshore world. As corrupt dictators and other élites remove vast sums of private and relocate them to financial centres like London, New York and Zurich, developing countries’ economies are deprived of local investment capital and their governments are denied desperately needed tax revenues – with the result that capital flows not from capital-rich countries to poor ones, as traditional economics might expect, but, perversely, in the other direction. Recent research has shown, for example, that sub-Saharan Africa is a net creditor to the rest of the world in the sense that external assets, measured by the stock of capital flight, exceed external liabilities, as measured by the stock of external debt. The difference is that while the assets are in private hands, the liabilities are the public debts of African governments and their people.

It is astonishing that so many members of the aid community have ignored tax for so long. Action on international taxation is, quite simply, the key to lifting hundreds of millions of people out of poverty.

TJN has been building up material on this for some time. Read more here.


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