A Developing Country Perspective on the 2017 Review of Irish Tax Law

I write in reference to the call for views globally on the review of the Irish Income Tax Act. I recently looked into Irish tax law and its effects on developing countries with particular focus on Africa. Although I have not published on this as yet I have compiled data that I believe will be of interest to the Irish government as it goes through its decision-making process.

Pattern of International Financial Flows Between Ireland and African Countries

Together with my colleagues we looked into the issue of flows out of Ireland using IMF data between 2009 and 2013 and what we see form an African perspective is while there was initial investment in Uganda, Kenya, Tanzania, Mauritius, Mozambique and South Africa, in reality this seems to have decreased throughout other African countries and by 2013 the only countries predominantly receive flows are South Africa and Mozambique. This data would need to be cross referenced as against the Double Taxation Agreements in place between Ireland and African countries: Botswana, Ghana, Zambia, Ethiopia, Morocco, South Africa. This list does not include Uganda, Mozambique or even Mauritius where the flows seem to be predominant. In addition, there are Irish business associations in the following African countries: South Africa, Zimbabwe and Kenya. In addition, there is also Irish business in Ghana that does not show up at all. There is a disconnect between the flows of finance and the treaty base in place as well as potentially actual support on the ground.

The Irish Spillover Report and Impact in Africa

Last year, the Department of Finance released “spillover” analysis of the potential impact of Irish tax policy, including the 12.5 per cent corporate tax rate, on developing nations. In the report, Michael Noonan commended the State for “taking a lead” in such research and thus showing its “full commitment” and fostering “a trusting relationship between the developed and developing world”. However, this document failed to analyze the implications of the State’s 12.5 per cent corporate tax rate not only through the lens of globalization but also through human rights. As a result, it did not unpack the subsequent knock-on effects that Ireland’s tax laws, policies and regulations are having on the on people in developing nations. As the figure below illustrates there are interlinkages between actions and laws in one states with inevitable spillovers in others and all states going forward should be at minimum aware of this.

Traditionally, the IMF [International Monetary Fund] and the World Bank have always recommended between 20 and 25 per cent corporate income tax. The World Trade Organization recommends 15-20 per cent and has since revised upwards to 20 per cent. But in Ireland your rate is at 12.5 per cent. If you sign agreements like DTAs with African countries based on residence then the taxes you will collect are 12.5% but the amount lost in developing country from the Irish business that is operating is 30%. However, this minimum recommended rate is based on the economics principle of cost-benefit analysis and the idea is that on average the amount you’re taking is enough to maintain the services that you’re granting, and 12.5 per cent doesn’t cover that. In addition, in a globalized world, by having a tax rate of 12.5 per cent, you are destroying the potential of developing countries to maintain their 25-35 per cent rates so that they can start becoming financially self-sufficient as businesses compare tax rates instead of the real competition which includes: political stability,

Philip Alston, UN special rapporteur on extreme poverty and human rights, last year also warned of the human rights implications on developing nations of excessively low corporate income tax rates. Speaking at a Christian Aid conference in Dublin, he warned that the State’s 12.5 per rate had descended into a type of mantra and that “mantras are simply slogans that are repeated unthinkingly”. He said policies that gave large multinationals “a free pass on tax” were especially damaging to developing countries which rely heavily on investment from multinational corporations.  “The 12.5 per cent corporate tax rate and the willingness of Ireland to countenance a wide array of special arrangements designed to attract inward investment and make itself an attractive financial hub have become almost a defining characteristic of the society,” said Alston.

A Developing Country Perspective on the 2017 Review of Irish Tax Law

I write in reference to the call for views globally on the review of the Irish Income Tax Act. I recently looked into Irish tax law and its effects on developing countries with particular focus on Africa. Although I have not published on this as yet I have compiled data that I believe will be of interest to the Irish government as it goes through its decision-making process.

Pattern of International Financial Flows Between Ireland and African Countries

Together with my colleagues we looked into the issue of flows out of Ireland using IMF data between 2009 and 2013 and what we see form an African perspective is while there was initial investment in Uganda, Kenya, Tanzania, Mauritius, Mozambique and South Africa, in reality this seems to have decreased throughout other African countries and by 2013 the only countries predominantly receive flows are South Africa and Mozambique.

This data would need to be cross referenced as against the Double Taxation Agreements in place between Ireland and African countries: Botswana, Ghana, Zambia, Ethiopia, Morocco, South Africa. This list does not include Uganda, Mozambique or even Mauritius where the flows seem to be predominant. In addition, there are Irish business associations in the following African countries: South Africa, Zimbabwe and Kenya. In addition, there is also Irish business in Ghana that does not show up at all. There is a disconnect between the flows of finance and the treaty base in place as well as potentially actual support on the ground.

The Irish Spillover Report and Impact in Africa

Last year, the Department of Finance released “spillover” analysis of the potential impact of Irish tax policy, including the 12.5 per cent corporate tax rate, on developing nations. In the report, Michael Noonan commended the State for “taking a lead” in such research and thus showing its “full commitment” and fostering “a trusting relationship between the developed and developing world”. However, this document failed to analyze the implications of the State’s 12.5 per cent corporate tax rate not only through the lens of globalization but also through human rights. As a result, it did not unpack the subsequent knock-on effects that Ireland’s tax laws, policies and regulations are having on the on people in developing nations. As the figure below illustrates there are interlinkages between actions and laws in one states with inevitable spillovers in others and all states going forward should be at minimum aware of this.

Traditionally, the IMF [International Monetary Fund] and the World Bank have always recommended between 20 and 25 per cent corporate income tax. The World Trade Organization recommends 15-20 per cent and has since revised upwards to 20 per cent. But in Ireland your rate is at 12.5 per cent. If you sign agreements like DTAs with African countries based on residence then the taxes you will collect are 12.5% but the amount lost in developing country from the Irish business that is operating is 30%. However, this minimum recommended rate is based on the economics principle of cost-benefit analysis and the idea is that on average the amount you’re taking is enough to maintain the services that you’re granting, and 12.5 per cent doesn’t cover that. In addition, in a globalized world, by having a tax rate of 12.5 per cent, you are destroying the potential of developing countries to maintain their 25-35 per cent rates so that they can start becoming financially self-sufficient as businesses compare tax rates instead of the real competition which includes: political stability,

Philip Alston, UN special rapporteur on extreme poverty and human rights, last year also warned of the human rights implications on developing nations of excessively low corporate income tax rates. Speaking at a Christian Aid conference in Dublin, he warned that the State’s 12.5 per rate had descended into a type of mantra and that “mantras are simply slogans that are repeated unthinkingly”. He said policies that gave large multinationals “a free pass on tax” were especially damaging to developing countries which rely heavily on investment from multinational corporations.  “The 12.5 per cent corporate tax rate and the willingness of Ireland to countenance a wide array of special arrangements designed to attract inward investment and make itself an attractive financial hub have become almost a defining characteristic of the society,” said Alston.

A Developing Country Perspective on the 2017 Review of Irish Tax Law

I write in reference to the call for views globally on the review of the Irish Income Tax Act. I recently looked into Irish tax law and its effects on developing countries with particular focus on Africa. Although I have not published on this as yet I have compiled data that I believe will be of interest to the Irish government as it goes through its decision-making process.

Pattern of International Financial Flows Between Ireland and African Countries

Together with my colleagues we looked into the issue of flows out of Ireland using IMF data between 2009 and 2013 and what we see form an African perspective is while there was initial investment in Uganda, Kenya, Tanzania, Mauritius, Mozambique and South Africa, in reality this seems to have decreased throughout other African countries and by 2013 the only countries predominantly receive flows are South Africa and Mozambique.

This data would need to be cross referenced as against the Double Taxation Agreements in place between Ireland and African countries: Botswana, Ghana, Zambia, Ethiopia, Morocco, South Africa. This list does not include Uganda, Mozambique or even Mauritius where the flows seem to be predominant. In addition, there are Irish business associations in the following African countries: South Africa, Zimbabwe and Kenya. In addition, there is also Irish business in Ghana that does not show up at all. There is a disconnect between the flows of finance and the treaty base in place as well as potentially actual support on the ground.

The Irish Spillover Report and Impact in Africa

Last year, the Department of Finance released “spillover” analysis of the potential impact of Irish tax policy, including the 12.5 per cent corporate tax rate, on developing nations. In the report, Michael Noonan commended the State for “taking a lead” in such research and thus showing its “full commitment” and fostering “a trusting relationship between the developed and developing world”. However, this document failed to analyze the implications of the State’s 12.5 per cent corporate tax rate not only through the lens of globalization but also through human rights. As a result, it did not unpack the subsequent knock-on effects that Ireland’s tax laws, policies and regulations are having on the on people in developing nations. As the figure below illustrates there are interlinkages between actions and laws in one states with inevitable spillovers in others and all states going forward should be at minimum aware of this.

Traditionally, the IMF [International Monetary Fund] and the World Bank have always recommended between 20 and 25 per cent corporate income tax. The World Trade Organization recommends 15-20 per cent and has since revised upwards to 20 per cent. But in Ireland your rate is at 12.5 per cent. If you sign agreements like DTAs with African countries based on residence then the taxes you will collect are 12.5% but the amount lost in developing country from the Irish business that is operating is 30%. However, this minimum recommended rate is based on the economics principle of cost-benefit analysis and the idea is that on average the amount you’re taking is enough to maintain the services that you’re granting, and 12.5 per cent doesn’t cover that. In addition, in a globalized world, by having a tax rate of 12.5 per cent, you are destroying the potential of developing countries to maintain their 25-35 per cent rates so that they can start becoming financially self-sufficient as businesses compare tax rates instead of the real competition which includes: political stability,

Philip Alston, UN special rapporteur on extreme poverty and human rights, last year also warned of the human rights implications on developing nations of excessively low corporate income tax rates. Speaking at a Christian Aid conference in Dublin, he warned that the State’s 12.5 per rate had descended into a type of mantra and that “mantras are simply slogans that are repeated unthinkingly”. He said policies that gave large multinationals “a free pass on tax” were especially damaging to developing countries which rely heavily on investment from multinational corporations.  “The 12.5 per cent corporate tax rate and the willingness of Ireland to countenance a wide array of special arrangements designed to attract inward investment and make itself an attractive financial hub have become almost a defining characteristic of the society,” said Alston.

A Developing Country Perspective on the 2017 Review of Irish Tax Law

I write in reference to the call for views globally on the review of the Irish Income Tax Act. I recently looked into Irish tax law and its effects on developing countries with particular focus on Africa. Although I have not published on this as yet I have compiled data that I believe will be of interest to the Irish government as it goes through its decision-making process.

Pattern of International Financial Flows Between Ireland and African Countries

Together with my colleagues we looked into the issue of flows out of Ireland using IMF data between 2009 and 2013 and what we see form an African perspective is while there was initial investment in Uganda, Kenya, Tanzania, Mauritius, Mozambique and South Africa, in reality this seems to have decreased throughout other African countries and by 2013 the only countries predominantly receive flows are South Africa and Mozambique. Please see the figures below that showing the changing pattern of the flows.

 

Figure 1: Flows in 2009                                                          Figure 2: Flows in 2010

 

 

 

 

 

 

Figure 3: Flows in 2011                                              Figure 4: Flows in 2012

 

 

Figure 5: Flows in 2013                                              Figure 6: Flows in 2014

 

 

This data would need to be cross referenced as against the Double Taxation Agreements in place between Ireland and African countries: Botswana, Ghana, Zambia, Ethiopia, Morocco, South Africa. This list does not include Uganda, Mozambique or even Mauritius where the flows seem to be predominant. In addition, there are Irish business associations in the following African countries: South Africa, Zimbabwe and Kenya. In addition, there is also Irish business in Ghana that does not show up at all. There is a disconnect between the flows of finance and the treaty base in place as well as potentially actual support on the ground.

The Irish Spillover Report and Impact in Africa

Last year, the Department of Finance released “spillover” analysis of the potential impact of Irish tax policy, including the 12.5 per cent corporate tax rate, on developing nations. In the report, Michael Noonan commended the State for “taking a lead” in such research and thus showing its “full commitment” and fostering “a trusting relationship between the developed and developing world”. However, this document failed to analyze the implications of the State’s 12.5 per cent corporate tax rate not only through the lens of globalization but also through human rights. As a result, it did not unpack the subsequent knock-on effects that Ireland’s tax laws, policies and regulations are having on the on people in developing nations. As the figure below illustrates there are interlinkages between actions and laws in one states with inevitable spillovers in others and all states going forward should be at minimum aware of this.

Figure 7: The Linkages Between Tax Evasion and Human Rights

Traditionally, the IMF [International Monetary Fund] and the World Bank have always recommended between 20 and 25 per cent corporate income tax. The World Trade Organization recommends 15-20 per cent and has since revised upwards to 20 per cent. But in Ireland your rate is at 12.5 per cent. If you sign agreements like DTAs with African countries based on residence then the taxes you will collect are 12.5% but the amount lost in developing country from the Irish business that is operating is 30%. However, this minimum recommended rate is based on the economics principle of cost-benefit analysis and the idea is that on average the amount you’re taking is enough to maintain the services that you’re granting, and 12.5 per cent doesn’t cover that. In addition, in a globalized world, by having a tax rate of 12.5 per cent, you are destroying the potential of developing countries to maintain their 25-35 per cent rates so that they can start becoming financially self-sufficient as businesses compare tax rates instead of the real competition which includes: political stability,

Philip Alston, UN special rapporteur on extreme poverty and human rights, last year also warned of the human rights implications on developing nations of excessively low corporate income tax rates. Speaking at a Christian Aid conference in Dublin, he warned that the State’s 12.5 per rate had descended into a type of mantra and that “mantras are simply slogans that are repeated unthinkingly”. He said policies that gave large multinationals “a free pass on tax” were especially damaging to developing countries which rely heavily on investment from multinational corporations.  “The 12.5 per cent corporate tax rate and the willingness of Ireland to countenance a wide array of special arrangements designed to attract inward investment and make itself an attractive financial hub have become almost a defining characteristic of the society,” said Alston.

A Developing Country Perspective on the 2017 Review of Irish Tax Law

I write in reference to the call for views globally on the review of the Irish Income Tax Act. I recently looked into Irish tax law and its effects on developing countries with particular focus on Africa. Although I have not published on this as yet I have compiled data that I believe will be of interest to the Irish government as it goes through its decision-making process.
Pattern of International Financial Flows Between Ireland and African Countries
Together with my colleagues we looked into the issue of flows out of Ireland using IMF data between 2009 and 2013 and what we see form an African perspective is while there was initial investment in Uganda, Kenya, Tanzania, Mauritius, Mozambique and South Africa, in reality this seems to have decreased throughout other African countries and by 2013 the only countries predominantly receive flows are South Africa and Mozambique. Please see the figures below that showing the changing pattern of the flows.

Figure 1: Flows in 2009 Figure 2: Flows in 2010

Figure 3: Flows in 2011 Figure 4: Flows in 2012

Figure 5: Flows in 2013 Figure 6: Flows in 2014

This data would need to be cross referenced as against the Double Taxation Agreements in place between Ireland and African countries: Botswana, Ghana, Zambia, Ethiopia, Morocco, South Africa. This list does not include Uganda, Mozambique or even Mauritius where the flows seem to be predominant. In addition, there are Irish business associations in the following African countries: South Africa, Zimbabwe and Kenya. In addition, there is also Irish business in Ghana that does not show up at all. There is a disconnect between the flows of finance and the treaty base in place as well as potentially actual support on the ground.
The Irish Spillover Report and Impact in Africa
Last year, the Department of Finance released “spillover” analysis of the potential impact of Irish tax policy, including the 12.5 per cent corporate tax rate, on developing nations. In the report, Michael Noonan commended the State for “taking a lead” in such research and thus showing its “full commitment” and fostering “a trusting relationship between the developed and developing world”. However, this document failed to analyze the implications of the State’s 12.5 per cent corporate tax rate not only through the lens of globalization but also through human rights. As a result, it did not unpack the subsequent knock-on effects that Ireland’s tax laws, policies and regulations are having on the on people in developing nations. As the figure below illustrates there are interlinkages between actions and laws in one states with inevitable spillovers in others and all states going forward should be at minimum aware of this.
Figure 7: The Linkages Between Tax Evasion and Human Rights

Traditionally, the IMF [International Monetary Fund] and the World Bank have always recommended between 20 and 25 per cent corporate income tax. The World Trade Organization recommends 15-20 per cent and has since revised upwards to 20 per cent. But in Ireland your rate is at 12.5 per cent. If you sign agreements like DTAs with African countries based on residence then the taxes you will collect are 12.5% but the amount lost in developing country from the Irish business that is operating is 30%. However, this minimum recommended rate is based on the economics principle of cost-benefit analysis and the idea is that on average the amount you’re taking is enough to maintain the services that you’re granting, and 12.5 per cent doesn’t cover that. In addition, in a globalized world, by having a tax rate of 12.5 per cent, you are destroying the potential of developing countries to maintain their 25-35 per cent rates so that they can start becoming financially self-sufficient as businesses compare tax rates instead of the real competition which includes: political stability,
Philip Alston, UN special rapporteur on extreme poverty and human rights, last year also warned of the human rights implications on developing nations of excessively low corporate income tax rates. Speaking at a Christian Aid conference in Dublin, he warned that the State’s 12.5 per rate had descended into a type of mantra and that “mantras are simply slogans that are repeated unthinkingly”. He said policies that gave large multinationals “a free pass on tax” were especially damaging to developing countries which rely heavily on investment from multinational corporations. “The 12.5 per cent corporate tax rate and the willingness of Ireland to countenance a wide array of special arrangements designed to attract inward investment and make itself an attractive financial hub have become almost a defining characteristic of the society,” said Alston.

A Historical Analysis of the Kenyan Taxation System

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

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!