Fifty years after independence, Africa’s aspiration to overcome underdevelopment inherited from the colonial period remains unfulfilled. There are both internal and external causes for this. African governments lacked political and policy capabilities to organize and lead a socio-economic transformation for sustainable and equitable development. The asymmetric integration of Africa into the global economy in the colonial period remained unchanged. Africa continued exporting unprocessed primary commodities and mineral resources without diversifying and upgrading the technological basis of its economy.
In addition to structural constraints faced by late developers Africa was also confronted by policy constraints in the form of policy conditionalities attached to aid within the context of international development cooperation. As a result, Africa remains economically underdeveloped and its people live in abject poverty.
This policy and resource dependency promoted outward looking accountability while undermining internal accountability of rulers to citizens, entrenching unequal power relations and lack of effective representation of citizens in policy making spaces.
Tax Justice Network – Africa (TJN-A) believes Africa cannot overcome its development challenges if the role of the state is not enhanced. It needs an active “developmental state” which sets tackling poverty and inequality as its central role and is diligently accountable to its citizens.
Such a state with this developmental role needs adequate financial resources to provide essential services to its citizens and to promote inclusive and sustainable development. However, the prevailing situation is rather different. The ability of the state to raise adequate revenue is hampered internally by self-seeking elites at the help of power and tax dodging practices of multinational corporations. TJN-A works to tackle these practices and, more broadly, harmful fiscal policies that hamper the ability of African states to raise adequate domestic resources to finance development.
Taxation is increasingly being recognised as the most reliable and sustainable source of domestic revenue mobilization (DRM). The centrality of taxation to development is underlined in the Outcome Document of the Third Financing for Development Conference (FfD3) which clearly states the importance of DRM to finance development and realize the Sustainable development Goals (SDGs).
However, raising domestic revenue from taxation particularly in poor countries faces numerous challenges of both a domestic and international nature. It is widely accepted that the current International Financial Architecture that determines the flow of resources l between nations is skewed in favour of rich countries and not fit for purpose from the perspective of Africa’s sustainable development. It encourages aggressive tax planning especially by wealthy elites and Multinational Corporations (MNCs) operating in Africa. This aggressive tax planning constitutes the bulk of illicit outflow of resources from Africa conservatively estimated to be over USD 50 billion a year according to the 2015 report by the High Level Panel on Illicit Financial Flows from Africa.
Outdated and ineffective international tax rules combined with a race to the bottom tax competition between countries remain the biggest challenge to enhance DRM. Further, the widely tolerated existence of tax havens that offer financial secrecy and low or zero tax rates exacerbates the situation. Companies exploit with ease loopholes in the global tax system to shift profits to jurisdictions with low or zero tax rates severely erode tax bases of developing countries and continues to undermine their efforts to raise domestic revenue. Efforts to reform global tax rules are yet to yield any tangible results. The Organization for Economic Cooperation and Development (OECD) led Base erosion Profit shifting (BEPS) project is one such recent effort to redesign international tax rules to protect the tax bases of both developed and developing countries. The BEPS project has however been criticized for being a rich country led initiative which failed to effectively involve and include the concerns and priorities of developing countries. It is against this backdrop that there is an increased demand from G77 countries and global CSO for an inclusive intergovernmental global tax body under the auspices of the United Nations which will have the legitimacy to clamp down on tax havens and to reform the international tax system in an equitable manner so that developing countries really benefit.
Our work falls under four thematic pillars:
- Tax and International Financial Architecture
- Tax and Inequality
- Tax and Extractives
- Tax and Investments