The Recent Addis FFD process and its Impact on Tax in the non G20 World

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I had the pleasure and honour of being present for part of the peripheral discussions and side events at the recently concluded FFD process in Addis Ababa a few days ago. As a lawyer and academic who is active in civil society I had an interesting time there watching and participating in the activities and several issues caught my attention from a tax and development perspective mainly the issue of fiscal legitimacy at a global level: accountability , responsibility, transparency, effectiveness, efficiency, fairness and justice in the processes at the global level of suffrage where one state has one vote!

Firstly, it is clear that the decision to build international and global democracy is constantly being kicked at the feet. I think that all states whether they are tax havens or not, developed or developing countries all have the right to participate in the legal processes that decide on laws …call it an international democracy and that this compromise will be a much better one than the one currently in place where only the G20 decide on how the laws and their architecture are to be designed.

I watched as the discussions unfolded into a deadlock on the creation of a democratic International Tax Organisation(ITO) that then was seemingly toppled over through political manouvering and offering of concessions to individual countries. Those in biggest opposition to the ITO seem to be the usual suspects from the G20 the USA (that houses the worst secrecy jurisdiction n the world-Delaware) and the UK ( that is the home of the new tax that manages to add more competition to the global and regional landscape of taxation ). Speculation was that the African countries that crumbled included South Africa the current chair of the G77 (itself a net received of IFF) and Ethiopia, the host nation (to whom concessions were promised) It seems clear that there was clearly a ‘democratic’ decision to remove the possibility of the remainder of the non G20 world to engage in a democratic process of deciding on how global taxes and wealth should be shared.

Secondly, the limits on commitments to fiscally provide more money to ODA or even domestic revenue collection, the result can only bode ill for the Development Agenda that took place a week later in New York. How is it possible that there will be more resources committed by states globally to improved health, housing, education and gender based issues and concerns as well as rooting out corruption when the states that should have decided not only to change the architecture of the international landscape on international taxes and flows democratically bowed out of the process.

Finally, the one winning point was gender. The mentions of gender throughout the end document have been strong and have maintained their concrete issues without being undermined or weakened. However the other area of human rights remain on tenuous ground as a failure to agree on availing more funds for rights will result in their non-realisation.

In conclusion the clearest issue coming forward is that the status quo has seemingly been maintained and while one waits to see how the improved structure of the UN Tax Committee will be fleshed out and one can only hope that the fullest extent of its mandate will be explored as we inch towards global fiscal legitimacy!

Utilising Tax literacy to Build Societal Confidence in a State: The Rwandan Model

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The common perception of taxes being a burden is one shared amongst many developing countries and Africa is no exception. This is mainly due to inefficiencies in tax revenue utilization, inequalities in distribution, corruption, lack of accountability and transparency in revenue management. Developing nations tend to be composed of tax resistant individuals. However, Rwanda’s historical and societal contexts, demonstrates the dramatic effectiveness of customised tax literacy programmes in enhancing tax understanding and consequently tax compliance.

One, the post-colonial and post-conflict developing countries face different tax contexts from those of European countries which have been well studied. In Rwanda for example, it is important to understand that the notion of tax existed in pre-colonial times in the form of tributes to the rulers: mwami, the colonial tax regimes only formalised it. Therefore, it is not possible to force this unique blend of tax history into models based on tax studies done mostly in European countries.

The link between fiscal development and tax literacy is not often unpacked. However, just as financial literacy is essential to financial management, so is tax literacy to tax awareness. The two have a direct correlation. Poor financial management can lead to lost wealth which is in turn lost tax revenue. Therefore, if financial literacy can influence financial behavior, it is expected that tax literacy too would also positively impact tax behavior. The end result is more tax revenue for fiscal development.

Consequentially, the culmination of progressive tax literacy stages in Rwanda has seen addition in tax revenue and appreciation of tax payment. It has increasing confidence in the State which is the collector of taxes while maintained the peace. State efforts range from radio programs, tax education in local languages, inculcation into school syllabus and involvement of the society in tax revenue allocation.

African states and developing countries should add in more tax literacy projects especially through state processes. This will enhance the confidence the society has in the State in regard to tax revenue use and the benefit that accrues back to the tax payer. [1]

[1] Waris and Murangwa, Tax Literacy in Rwanda https://www.academia.edu/2419611/Utilising_Tax_Literacy_and_Societal_Confidence_in_a_State_The_Rwandan_Model

Reflecting on Progressive Realisation and the Financing of the MDGs: An African Analysis

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The absence of express provisions relating to finances has impeded the realisation of human rights. Holmes and Sustein stated “rights cannot be protected or enforced without public funding and support…all rights make claims on public treasury.” Rights require resources to be allocated to them in order that they can begin to be realised.

There are several core texts which provide the source of human rights discourse in Africa. These are the UDHR, the ICCPR and the ICESCR and even though they do not offer a definition of human rights they all state that the main purpose of these rights is to promote human dignity. Regionally, African states have the ACHPR (The African Charter of Human and People’s Rights), a treaty that has outlined the various human rights but not the right to social welfare.

Globally, the Millennium Development Goals were a critical step towards achieving the most crucial social, economic and human rights making financial demands of state nationally as well as in co-operating with other states to realise rights, however this was limited to developing countries only. While most countries have made remarkable progress towards achieving them, low-tax and low-income states in Africa are still lagging behind.

Data using a simple analysis shows that there is a direct relationship between the amount of tax collected as opposed to resource revenue and the responsibility of the state in re-distributing the resources for the benefit of their people.[1] Although there have been challenges when it comes to relating tax to MDGs, there are debates moving towards the possibility and the practicalities of the connection between the two practically although the treaty framework does not reflect this with enough clarity. At the level of political will, the AU Agenda for 2063 also sets out an ambitious development plan aimed towards the realisation of rights especially economic rights.

The main obstacle to the realisation of these human and socio-economic rights is limited resources. A declaration of rights as being human or socio-economic does not suffice for their realisation, instead, the development of equitable global, regional and national tax systems will be instrumental in achieving these rights and ultimately, the Millennium Development Goals and the Post 2015 development agenda.

[1] Waris and Kohonen, Linking Taxation to the Realisation of the Millenium Development Goals in Africa

http://eadi.org/gc2011/waris-109.pdf (accessed 20th May 2015)

Towards a Framework Convention on Global Health : A Fiscal Perspective

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Achieving health globally requires a combination of a change in thinking and action as well as a financing of certain aspects; there are both fiscal and non-fiscal challenges to the achievement of health globally for all people whether they live in developed or developing countries. However, what will it take to eliminate the gross health inequities that continue to plague the world, the unconscionable health gaps between the rich and poor?

Today the world is focusing on two different processes in an attempt to achieve health as well as other important milestones in the well-being of all people. The Financing for Development process on the one hand is looking to encourage and crystallize fiscal commitments of states while the SDG discussions are focusing on the basic needs and rights of peoples that can be achieved in the post 2015 period.

The eyes of the global health community are similarly focused on the post-2015 sustainable development goals, with the World Health Organisation (WHO) is advocating for universal health coverage: global health with justice  improving healthy lives for everyone, with particular attention to marginalised communities worldwide and its fiscal implications. The sustainable development agenda, however, cannot achieve global health with justice without robust fiscal global, regional and national level governance. A proposal has been made for the adoption of a legally binding global health treaty – a framework convention on global health grounded in the right to health.

While many may argue that there is treaty fatigue and perhaps too many treaties there remains the need to crystallise one particular principle in human rights treaties: rights require resources. The continued reliance on the idealism of human rights without reference to the reality of the need to fund it can no longer be ignore and if for no other reason a framework convention on global health could allow for the clear recognition of this principle. The financing of health under the International Covenant on Economic Social and Cultural Rights places the responsibility of progressive realisation on both domestic states as well as through international co-operation and assistance and to date this has remained within the discretion of states as they choose to assist or not, health is a global issue: diseases cross borders as easily as the wind can blow and both these arms of realisation need further clarity within a treaty framework.

The understanding of the right to health remains partially clouded and this hinders both domestic and international accountability for international human rights obligations. To solve this problem, a framework convention on global health could bring clarity and precision to norms and standards surrounding the right to health, including states’ duties to “take steps…to the maximum of their available resources, with a view to achieving progressively the full realisation” of the right to health. Most importantly, the framework convention on global health could build on a progressive post-2015 development framework by putting specific standards and forceful accountability behind the post-2015 global commitments for both the SDGs as well as the FfD processes.

A Historical Analysis of the Kenyan Taxation System

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There is no perfect tax system, merely a sub-optimal system that reflects the compromised agreements between the state and society. A tax system, however should ideally follow the canons of Ibn Khaldun and Adam Smith: equality or equity; certainty; convenience; economy; and justice. Additional canons added on by other scholars like David Ricardo include: productivity, buoyancy, flexibility, simplicity and diversity.

African countries and Kenya are no exception ad they too in order to have a compliant population should try to achieve as many of these as possible and to the greatest extent possible. In Kenya taxation before colonialism was rudimentary, simple and operated at a very small scale and was mainly in kind. The Arabs settled along the East African coastline in the 7th century and formed themselves into Sultanates as city states resulting in the creation of the Sultanates of Zanzibar, Mombasa, Malindi, Pate, Pemba, Mafia, Kilwa and Witu. These city states under the Sultanate applied the Islamic law based taxes of zakat, jizya, sadaqa and khums in addition to customs levy, capitation tax as well as harbour fees and in return defence as well as development of an education and sewer system was implemented When the Portuguese came in the 14th century they continued to apply the trade taxes however only maintained defence of the seas.

Taxation under the British, was individual or homestead based and included the hut and poll tax, land tax, graduated tax, income tax and customs and excise duty. These taxes were not used to develop much apart from building the railway and roads. They deliberately ignored the cardinal principles of taxation. This was due to the fact that the British colonial policy rested on the policy of conversion of a territory into a viable economic entity. Other drivers of the British taxation system are also highlighted and they include, among others, to supplement the cost of administration, to establish control, to convert a subsistence economy into a capitalist one and enforced labour was part of this philosophy.

Kenya had developed an extensive taxation system that unfortunately maintains a reflection of the colonial policy and this resulted in a tax system, highly dependent (both formally and informally) on customs and import duties that today is spawning more problems in a globalizing world that is looking to open borders and reduce tariffs.

See generally: Waris: Tax and Development Law Africa (2013) http://www.lawafrica.com/item_view.php?itemid=91

Taxation of SMEs in Africa and Kenya

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There is increasing pressure in Kenya to give better concessions for MNCs (not just international ones but regional as well as homegrown multinationals) but the biggest question for a newly emerging country like Kenya remains development, poverty and raising the standards of living . So where does the SME and micro-business fit in? How does one ensure that the small businesses succeed and prosper. The African Tax organisations are  studying SMEs and interesting facts continue to arise for the Micro enterprise in Africa. These SMEs or micro enterprises are numerous and include both registered and unregistered business. The unregistered  ones continue to use illicit means to work through the system: so how are the legitimate small and micro enterprises fairing?

In a globalised world where everyone is pushing the MNC concept the modest businessperson is having great difficulty which means that if we do not protect and nurture these cottage industries and small-scale businesses we will not have a diverse economy with innovative business practices that suit our context. So where are the problems and what can government do to assist?

Firstly, with the tightening of Anti-money Laundering laws the SMEs are having more difficulty setting up bank accounts. Some banks are shutting down the accounts of the entire groups of SMEs without exception and the result is that SMEs stop functioning sometimes for more than 6 months. In addition they are not able to get loans easily and are placed under a higher level of scrutiny, The fact there is no sieving mechanism within the banks that are closing all accounts means that if you are a MNC or big company you escape the added scrutiny.

Secondly, the movement of goods and services into and out of the country. Several SMEs I deal with long delays at the port as well as the difficulties in assessment. This means that perishables expire and that the cost of doing business is prohibitive. In the world of the franchisees where local businesses are expected to maintain global standards through use of the same source of products and raw materials, this almost guarantees failure.

Finally, there is a need to recognised that in developing countries like Kenya the majority of business is small business and by giving preference to larger businesses you are ensuring that there is no emerging small scale and potential MNC from within the country.

There are many other reasons and I would love to hear your opinions on this all I can see is that the small businessperson cannot survive int he current climate unless they remain unregistered!

Taxation and State Building in Kenya: Enhancing Revenue Capacity to Advance Human Welfare

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Tax is more often than not considered a tough subject, which is best left to tax experts to grapple with. It is this general perception that has led to the lack of information among many people, Kenyans and Africans are no exception. In fact, a large percentage of the population is still in the dark regarding tax policies and laws as well as tax and development over time. A 2009 report on Kenya, has sought to analyze the existent tax structure in Kenya but also to explore emerging regional and national themes. The report covered key areas such as the practice of tax avoidance and evasion in Kenya and its effect on the economy. Above all, the Report was aimed at aiding the Kenyan layperson in understanding the taxation system and how it works for his or her benefit.

The role and importance of a tax regime in any welfare state because most states in Africa rely on tax for funding. The social contract exists between the state and the public to give taxation its legitimacy can be approached from a human rights perspective with regards to taxation and how the same can help in the alleviation of living standards, poverty and other scourges affecting the taxpayer. Tax can be seen as a just tool that can cure inequalities in Kenya as well as other countries in the world. This work has been developing and now many are discussing the linkage between tax and human rights which has been published in a book Waris, Tax and Development LawAfrica (2013)

  1. http://www.lawafrica.com/item_view.php?itemid=91
  2. http://www.taxjustice.net/cms/upload/pdf/Kenya_1004_TJN_Spreads.pdf