Environmental Taxes in Africa

By Elvis Oyare

While taxation has traditionally been regarded as a revenue-generating scheme in which a person contributes to the running of the state in exchange for the maintenance of order in the society as well as the provision of several services, increasingly, taxation has become an instrument which the state wields in the performance of its regulatory function over various industries within its borders. Through the imposition of ‘specialized taxes,’ states are able to perform the dual role of restricting or mitigating the performance of certain activities as well as being a creative way to perform their traditional aim of raising essential fiscal revenue. Several of these specialized taxes exist, however, of relevance to our present discussion is such type of tax referred to as Environmental taxes.
Pursuant to the OECD, Environmental taxes are those taxes whose tax base is a physical unit (or a proxy of it) that has been proven to have specific detrimental impacts on the environment.1 These types of taxes are diverse and include amongst others energy taxes, carbon taxes, fossil fuel taxes, pollution taxes, transport taxes, and resource taxes.2
Carbon taxes are a form of excise tax on the producers of raw fossil fuels, based on the relative carbon content of those fuels. These taxes discourage the use of fossil fuels that are carbon-intensive by making them more expensive. Energy taxes are taxes on energy products which include consumption of electricity, consumption of fuel, and emission of greenhouse gases. They are levied on the energy-producing source/ the installation plant. Fossil fuel taxes are downstream taxes applied to fossil products, such as diesel, gasoline, and vehicular natural gas, that are used for road transport. Transport taxes on the other hand are traditionally qualified as a tax that is related to the ownership and use of motor vehicles. Pollution tax is calculated based on the emission of different gases (i.e. NOx, SOx, CO2 ) or ozone-depleting substances and harm caused to water resources or land using different materials (chemicals, pesticides) or anything that dissolves in nature or reacts to it. A resource tax refers to a tax levied on the extraction of a natural resource.
Following an increase in emissions and environmental pollution as a result of certain industrial activities, a number of African countries have begun introducing environmental taxes to curb these activities into their fiscal regime. These countries, although the list is not exhaustive, include South Africa; Kenya; Ghana; Egypt amongst others.3
According to ATAF, based on a survey of 37 ATO countries, revenues from environmental taxes average 0.13% of gross domestic product. Whilst these are the lowest contributor to GDP, there is scope for these taxes to increase the tax take.
As the rest of the continent endeavors to catch up on the imposition of environmental taxes, their policymakers must conduct empirical studies in order to avoid any unintended environmental or fiscal consequences where they adopt a one-size-fits-all approach and just apply taxes seen to be applied in other countries. There are optimal alternatives and it is essential that tax administrations are cognizant of the taxation principles of neutrality; efficiency; certainty and simplicity; effectiveness as well as fairness when intending to introduce such taxes.4

REFERENCES
1. ‘What Are Environmental Taxes? | Japan Center for a Sustainable Environment and Society (JACSES)’ http://jacses.org/en/paco/envtax.htm accessed 6 February 2022

2. Ibid

3. Kombat AM and Wätzold F, ‘The Emergence of Environmental Taxes in Ghana—A Public Choice Analysis’ (2019) 29 Environmental Policy and Governance 46 https://onlinelibrary.wiley.com/doi/abs/10.1002/eet.1829 accessed 6 February 2022

4. OECD, ‘Fundamental Principles of Taxation’ accessed 6 February 2022

Fiscal Regimes Used in the Extractive Industry: A Developing Country Perspective

By Mary Ongore

Introduction

The discovery of natural resources in a country can have a significant impact on the revenues of a jurisdiction. These benefits can however only be realized where there is strong governance. The careful design of the fiscal regime is also imperative. This blog will review the types of fiscal regimes available, as well as the considerations developing countries, should make in designing them.

Types of regimes

The main fiscal regimes used to tax the extractive industry are contractual regimes or concessional regimes (also known as tax/royalty regimes).

Concessional regimes

Under concessional regimes, the natural resources belong to the investors who in exchange pay royalties on the volumes extracted. In addition, they will also pay some form of profit-based tax. The royalties will usually be based on the volume of products extracted products while the profit-based tax will usually be in the form of company income taxes, excess profits (or variable income) taxes, and resource rent taxes.

In the early years of extraction, revenues from profit-based taxes will generally be lower as cost recovery applies. Royalties on the other hand are calculated on the gross volume or value of production with no deduction permitted for costs and are payable once production commences. As a result, royalties are generally easier to predict and administer and ensure a steady income stream as they do not depend on the price of the product or revenues earned. The royalties are therefore favorable where governments want to raise revenue early in the project life. However, as they are not profit-based, they may deter exploration where margins are slim and where projects are only significantly profitable on a pre-tax basis. The profit-based taxes are however not progressive unless the tax rate scales are used. In addition, they are difficult to administer.

Bonuses are also commonly used under this regime and represent upfront payments made without full knowledge of the extent of production values. Although tax/royalty regimes are common in mining industries they are also used in the oil and gas industry.

Contractual regimes

Contractual regimes on the other hand can either be production sharing contracts or risk service contracts. These regimes are both are used in the oil and gas industry but are less common in the mining industry.

Under production sharing contracts, the revenues from extraction are shared between the host country and the international oil companies who work as a contractor. There may also be a royalty on gross production. A percentage of the remaining production known as cost oil is allocated to the investor to cover its cost of production. There are limits on the recoverable cost oil in a given year and costs exceeding the cost oil allocation for a particular year are generally carried forward. After the deduction of royalty amounts and cost oil, the remaining amount known as profit oil is further allocated based on pre-agreed formulas and percentages. This profit oil is also subject to regular profit-based taxes with deductions applying based on the tax law. The cost oil ceiling allows the government to recover early benefits.

On the other hand, under risk service contracts the government owns the oil and gas and the government pays a fee to the investor for exploration and production services. International Oil Company works as a service provider in different stages of the project. The fee paid to the investor may also be subject to profit-based taxes.

There can also be additional taxes in form of bonus payments, whether signature bonus or production bonus. Most tax regimes allow for bonuses to be tax-deductible since they are a cost of doing business; the larger the tax relief for the bonuses offered in the contract, the greater the magnitude of the upfront bonus is likely to be. However, they are typically not allowable for cost recovery under PSC, which ensures that the state receives more profit oil.

Other taxes

Other taxes on the extractive industry include VAT on domestic consumption which is often refundable on the export of the products. Sales or dispositions of assets are also taxable under ordinary income tax or in the form of capital gains tax. Taxes are also levied upon profit distribution whether done through the use of dividends, interest, royalties, and service fees to subcontractors.

General considerations

Whilst there are differences between the two regimes, it should be noted that there is room for case-by-case negotiation under both. Tax and royalty schemes originated in the mid-1800s and generally prevailed historically. To date, they continue to dominate in OECD countries. In developing countries, however, contractual regimes which emerged in the 1950s are more common based on the desire to retain sovereign rights over a country’s resources. While it was generally argued that concessional regimes place oil companies in a much stronger position and allow them to exploit governments of oil-producing countries, it has been shown that such exploitation was not because of the fiscal regime, rather it was a combination of different political, economic, social and legal conditions, which have changed dramatically since then. In the early days, host governments often lacked expertise in the conclusion of concessional contracts, often giving sweeping powers and rights to extractive industry companies through one-sided agreements. Benefits to host governments were limited to royalties based on the volume of production at a flat rate rather than a percentage of the value of the oil produced. However, post the second world war, a new generation of concession agreements was developed which granted the host government more rights.

Although contractual regimes are preferred by developing countries, it has been shown that it is possible to design concessional regimes in a way that results in similar economic outcomes as contractual regimes.

General considerations

In the design of a fiscal regime, countries should generally adopt a regime that best suits them. Whilst it is advisable to learn lessons from other countries, as there is no one-size-fits-all regime, countries should take the following considerations into account when designing their regime.

The fiscal regime adopted should result in a maximum return for the government while ensuring optimum economic efficiency. This can be done through the use of competitive tax rates and good use of deductions in the tax regime. Governments may, however, also design a fiscal regime that results in a lower effective tax rate because they would like to attract investment and compensate for high costs, high geological risk, and political risk. Where there is high volumetric potential a higher tax rate can be adopted.

Price volatility should also be considered particularly in the oil industry. Governments tend to favor high tax rates during an upswing in prices with conversant reduced tax rates during a downswing. It should however be noted that changing the fiscal regime is often a slow process. As a result, fiscal regimes should be flexible and responsive to these changes.

As it pertains to the control of the natural resources, although the government control is higher in contractual regimes, it has been shown that government control can be retained in concessional regimes through the legal and regulatory framework. Under concessional regimes, governments can still exploit the competitive instinct of international oil companies and build successful oil and gas regimes in a short time and benefit from the deployment of resources to the oil and gas industry. From an economic perspective, the government’s tax rate can ensure that there is commensurate compensation irrespective of the ownership of the underlying ownership.

Another consideration to be made in the design of the fiscal policy is stability. Investors prefer regimes that remain stable throughout the life cycle of exploration. Regimes that constantly change deter investment. Generally, a certain level of instability is acceptable where it is compensated for via a low tax-take. In addition, stability ensures that revenues are predictable for the host government.

Finally, the chosen fiscal regime should result in administrative efficiency. Tax administrators should be well appraised on how the regime works in order to prevent exploitation from the extractive industry operators.

Conclusion

As there is no fixed regime design that benefits developing countries, due care should be taken in the design of the regime in order to ensure that it is best suited to the individual circumstances of each country. The central fiscal issue is ensuring a ‘reasonable’ government share in the rents often arising from the extractive industry.

Although contractual regimes are perceived to be tougher and therefore the optimal regime for developing countries, concessionary regimes can also be designed to be similarly tough. Governments should ensure that they focus not just on the tax rate but also the way fiscal reliefs are granted. What is of utmost importance is the way the tax base is defined. Poorly designed fiscal regimes, however, can seriously undermine revenue potential. An optimal regime will consider the fluctuations in revenues during the cycle of exploration and ensure that their regimes can adapt to them. There are also various ways of ensuring fiscal flexibility through the linking of the tax/royalty/production share to proxies for profitability and it is encouraged to take these into account in developing the fiscal regime.

The evaluation criteria during the design of regimes can include an analysis on whether the regime is progressive, encourages efficient development, results in dependable revenues, and results in a favorable sharing of risk between investors and governments.

The IMF has developed a Fiscal Analysis of Resource Industries (FARI) tool which can be used to model cash flows for petroleum and mining projects. This is a useful tool that has successfully been used in many jurisdictions and assists with the optimal design of the fiscal regime.

The Mozambique Hidden Loans Case: Securing Fiscal Legitimacy in developing countries

By Mary Ongore

In 2016, it was revealed that three semi-public entities had illegally taken on debts of over USD 2 billion that were backed by government guarantees. The borrowing companies were Mozambique Asset Management (MAM) (USD 535 million), ProIndicus (USD 622 million), and Empresa Moçambicana de Atum (Ematum) (USD 850 million) which had all been incorporated between 2012 and 2014. All three entities were linked to Mozambique’s state security and intelligence services (SISE) and shared a common CEO, a director of the SISE.

The loans were purported to have been taken in order to establish tuna fishing and maritime security businesses and the lenders were Credit Suisse, VTB Bank, and the European bond market. The basis for such loans was the need for Mozambique to secure assets of oil and gas firms operating in Mozambique waters. The repayment of the debt was meant to be from revenues raised from annual fees oil and gas firms transiting the Mozambique channel would pay for security services. Additionally, revenues from tuna fishing would also assist in the repayment of the loan. No such payments had however been received and the main oil and gas firms in Mozambique had signed no contracts with the semi-public entities. Although future revenues from oil and gas extraction did not act as collateral for the loans, the lenders generally believed that these future revenues would increase the likelihood that these loans would be paid. It is largely believed that these funds were pocketed by politicians and politically exposed persons.

These loans, however, violated paragraph 2 of Article 179 of Mozambique’s Constitution in that they had not been submitted to the National assembly for assessment, approval, and monitoring. They also breached the domestic annual budget appropriation bill which put a top limit on government borrowing.

In 2015, Mozambique approached the IMF for the emergency balance of payments assistance. Following the first disbursement of the IMF loan, during debt restructuring, in 2016 the IMF discovered the loans and suspended general budget support. This move was followed by the World Bank which suspended aid disbursements. G14 donors also suspended general budget support while the US placed its annual aid allocation under review. The country is now deemed to be in public debt distress.

These loans illustrate how illicit financial flows not only flow from developing countries but also allow these flows to return to developing countries. These debts met the description of odious debts as they were illegally gained without the consent of the public and failed to provide any tangible benefit. In 2020, the Mozambique constitutional court ruled that the loans were illegal and unconstitutional and as a result, the government was not obliged to pay them back.

This case illustrates the role constitutional and legal safeguards can be used to protect developing countries from taking on excessive levels of debt. This is mainly achieved by ensuring fiscal legitimacy in debt taking by requiring accountability and transparency in borrowing. It also shows the importance of having widely available published information on debt taken on by both the state as well as its publicly owned entities. The Mozambique ruling also shows that there should be better governance of financial institutions in developed countries to ensure that they do not issue odious debt without following proper procedures and conducting due diligence. Although illicit financial flows move from developing to developed countries, this case shows that developed countries also have a role to play in governing lending institutions in their jurisdictions in order to combat Illicit Financial Flows. The key to tackling this problem is the issue of access to information both by developing and developed countries. Fiscal legitimacy can, therefore, only be attained where citizens of developing countries have access to information. Without cooperation from developed countries, it would be difficult to govern borrowing in developing countries which would allow for corruption and revenue loss that will further plunge developing countries into poverty.

CAN AFRICA FINANCE ITS OWN CLIMATE DRIVEN AGENDA?

Parita Shah,
Department of Earth and Climate Science, University of Nairobi

7th December 2021

Introduction

By 2017, Africa was emitting less than 4% of carbon dioxide emissions.1 Although the continent is the lowest emitter, African countries will lose 2-5% of their GDP with the slightest warming scenario.2 This means Africa will not be able to achieve the Sustainable Development Goals (SDGs) especially reducing poverty, creating jobs, the equitable approach for all and climate adaptation.
While the continent wants to achieve the SDGs, it must also be able to fight climate induced problems. However, there is a real challenge to that. This is because while the 2015 Paris Agreement focused on reducing fossil fuel emissions, the CoP 26 whose target was to totally phase out fossil fuels by the developed nations, are talking about ‘phasing down coal’ rather than ‘phasing off coal’. While Africa continuously suffers from the debt crisis, its climate induced crisis will increase as its European and Chinese counterparts are funding investments in the fossil fuel sector.
For example, in 2020 the Foreign Direct Investment (FDI) to Senegal increased by 39% due to an offshore oil and gas drilling project invested by Australian and British Companies. The same was the case in the Republic of Congo where the investments increased by 19% towards offshore oil drilling, in the Democratic Republic of Congo it increased by 11%.3 China brought in funding of 2 billion dollars to Kenya for mining coal in the Lamu (World Heritage Site) region under the Amu Coal Project. All this means the destruction of the mangroves, habitat, corals and biodiversity under the sea. Kenya was lucky that its National Environmental Tribunal ruled against the power plant decision and the project came to a halt.4

The problem

African countries are further worsening climate induced problems by offering their citizens fossil fuel subsidies. Kenya is one such country where taxpayers pay towards these expenses and yet they suffer the consequences of climate change. To worsen it further, these countries will keep on repaying their debts created by the fossil fuel foreign investment partners and in turn, the environment deteriorates through droughts, floods, rise in sea levels, pests and diseases. African countries are increasing their own debt burden which unfortunately will be carried as a cross by its taxpayers whose lives will also worsen with climate change. Natural resources will diminish and countries’ debts will stay as a burden as payments will become next to impossible due to diminishing revenues worsened by climate change accompanied by poverty.

The solution

Instead of digging their fossil fuels, these countries need innovative finance which can be in the form of blended finance, green and blue bonds and debt swaps. Countries can bring in private investors where they work with communities on developing renewable energy like solar and wind which are very practical in arid and semi-arid areas. This would create a balance for the taxes which locals pay as well as implement most country and county policies that reflect on human rights where the right to a clean and healthy environment is the key. This also helps combat the negatives of climate change caused by fossil fuels.
To add to that, countries can also sell green and blue bonds based on renewable energy, terrestrial conservation and the blue economy which would sustain the negative impacts of climate change. Egypt released its renewable bond in 2020 while Seychelles released their blue bond in 2018. Moreover, debt swaps are also an option if we want to mitigate the impacts of climate change. Where countries cannot afford to pay off their debts, there should be the alternatives to conservation like protection of wetlands, habitats, preventing deforestation and mangrove destruction. This would help curb environmental destruction and reduce the negative impacts of climate change while at the same time financing Africa’s climate driven agenda.

References

  1. Ayompe. L. M., Davis. S. J and Egoh. B. N., (2021). Trends and drivers of African fossil fuel CO2 emissions 1990–2017. Environmental Research Letters Environ. Res. Lett. 15 (2020) 124039.
  2. Economic Commission of Africa
  3. The World Bank., (2021). International Debt Statistics 2022. World Bank Group.
  4. https://www.bbc.com/future/article/20211028-how-chinas-climate-decisions-affect-the-world

Reflections on the Economist Intelligence Unit Report on Vaccine Inequity

Annette Nabayi, 8th November 2021

Overview

Vaccine inequity explains how COVID-19 vaccines are being rolled out in an unequal manner between advanced and developing economies. Presently, the European countries have recorded higher vaccination levels of their population while the African and other developing states have evidenced a 1% vaccination rate. Consequently, the EIU report on vaccine inequity predicts economic losses for the developed and developing nations resulting out of vaccine inequality. The unequal distribution of the vaccine globally might lead to a loss of $2.3 trillion GDP between 2022 and 2025. In this blog, I reflect on the findings of the report on vaccine inequity. I will outline the identified causes of vaccine inequity and then describe its impact on the developing world. Towards the end I will suggest some action steps.

Causes of Vaccine Inequity

The report states that vaccine inequity has been triggered by aspects such as shortage of raw materials resulting in lessened production abilities, specifically in developing states. Other aspects entail limited availability of finance which developing states can spend between meeting basic needs of its population and purchasing vaccines, reduced healthcare staff to administer the vaccines, poor infrastructure to transport the vaccines, and vaccine hesitancy.

Impact of Vaccine Inequity

The report projects that by mid-2022, many states will have vaccinated less than 60% of their citizens. Most countries in Europe, North America, South America, and China have already attained the 60% rate while two-thirds of African countries are yet to reach this rate will attain the 60% level from 2023 onwards. The states that have vaccinated less than 60% of their population will record a GDP loss of $2.3 trillion between 2022 and 2025. Countries in Asia will be highly affected with an estimated loss of $1.7 trillion while Africa will be severely impacted with an evaluated 3% level of the predicted GDP in 2022 to 2025. The need to increase the vaccination level to the recommended 60% degree will help in the dismissal of social distancing measures, increase in revenue from tourism and business travel activities, and preventing probable social unrest of prolonged struggle against COVID-19.

Bridging the Vaccine-Access Gap

The vaccine access gap might last long that anticipated only few vaccines have been distributed. COVAX is an initiative by WHO with a goal of providing equitable access to COVID-19 diagnostics, treatments and vaccines. It is to ensure all countries receive a fair share of vaccines under which 1.9 billion doses have been pledged. From the time of this pledge in 2020, only 210 million doses have been shipped to Ghana and Cote d’Ivoire. COVAX will help bridge vaccine inequality through fair distribution of the vaccines. Advanced economies such as Russia that have pledged to provide vaccines to developing nations has evidenced production challenges hence the delivery delay. China’s pledge of vaccines has been adversely influenced by claims that the vaccines have low levels of protection. Seychelles had to impose lockdown after the inoculation of the China vaccine while Chile administered boosters to the inoculated China’s Sinovac vaccine.

Way Forward

The vaccine’s essence is to provide safeguards against infection. Therefore, the need to determine sustainable approaches to treat COVID-19. Currently, some states are formulating COVID strategies such as informed scientific input, strong political commitment, and decisive actions that might eliminate COVID.

Domestic Resource Mobilisation, Debt and Citizen Participation: Navigating Sustainable Development in Africa

By Mwaniki Maina

The United Nations Declaration on the Right to Development states that development is a process made up of political, social, economic and cultural dimensions.[1] Successful realisation of the process of development includes active, free and meaningful participation by the citizens and that this participation is based on reasonable opportunity to be involved.[2] The terms active, free, meaningful and reasonable address the role of the citizens in development that is participation in all stages of infrastructural, economic, political and socio-cultural development. Thus, the Declaration provides a blueprint suggesting that development ought to be multi-sectoral and it ought to encompass all members of society.

The requirement of active, free, meaningful and reasonable participation are key elements to the realisation of the principles of transparency, accountability and responsibility, which make up the ideology of fiscal legitimacy. The principles of fiscal legitimacy also include justice, fairness, effectiveness and efficiency. Thus, understanding that development is a process, allows the analysis of its justice and fairness, questioning whether this development facilitates transparency, accountability and responsibility and finally, assessing the process’ effectiveness and efficiency.[3]

Sustainable development is premised on the Leave-No-One-Behind principle, which provides that all members of society ought to be involved in development.[4] This includes vulnerable groups such as women, children, the youth, the elderly and disabled persons and persons who have been marginalised and excluded from decision making.[5] The principles of justice and fairness in fiscal legitimacy inform the realisation of sustainable development in that, they call for equitable distribution of development and further, where resources are collected for the purpose of development, this contribution should only occasion minor discomfort to the citizens.[6]

What sustainable development and fiscal legitimacy thus suggest is that the citizens ought to be actively involved in the process of development. The decisions made in regard to development ought to have the approval of the members of society. The process of development involves multiple stages such as the proposal for development, financing of the intended development, to the actual implementation of development. In all these stages, the citizens ought to be afforded active, free and meaningful participation. This is in pursuance of justice and fairness in development distribution and it is based on transparency, accountability and responsibility, with the goal being efficient and effective development.

Critical to development is financing. For most governments, financing comes in the form of taxes, loans and grants as well as government businesses.[7] Following the onset of the COVID 19 pandemic, many developing countries were faced with the real need to increase their domestic resource mobilisation.[8] That is, increasing their revenue collection from their tax bases. Loans and grants were not as freely available during the pandemic as they were earlier, this was seen as a result of donor countries focusing their resources on cushioning their own economies first.[9] Thus, financing development as countries recover from the COVID-19 pandemic which witnessed many African countries go into recessions, contracting their economies by 2%,[10] should take into account the need for domestic resources and debt sustainability.

Citizen involvement is even more necessary in the development process during this period of pandemic recovery for most economies in the developing world. The principles of fiscal legitimacy and the ideology of sustainable development demand that financing of development be done in a manner that occasions the least burden to the citizenry, that all members of society be involved in decision making and that these initiatives be sustainable.

The Organisation for Economic Co-operation and Development (OECD) has been involved in the financing African economies discussion and hosted the Summit on Financing African Economies in May of 2021. The position of the OECD is that, overall growth requires the development of infrastructure and that infrastructural development is only possible, where it is adequately financed. The OECD states that financing infrastructural development requires an improvement in the bankability of these projects, noting that often times, there is a financing gap between the resources available to developing countries and their development needs. The suggestions available include the reliance on public debt, an increase in domestic resource mobilisation which would see increased revenue collection and finally, the involvement of the private sector through public-private partnerships. These are all sentiments that were raised by parties present in a technical meeting by the OECD in partnership with AUDA-NEPAD and ACET.[11]

Public debt, domestic resource mobilisation and public-private partnerships all need to be addressed using the principles of fiscal legitimacy. As countries take up debt, there is a need to address debt sustainability. The principles of justice and fairness suggest that the citizens ought to be subjected to minimal burden and discomfort where the collection of public resources is concerned. With regard to debt sustainability, countries taking on debt to finance their infrastructural development should not impose heavy tax burdens as a means to collect funds to repay these debts. Governments in developing countries are encouraged to set debt ceilings that would limit the amount of borrowing as well as taking up loans on concessional terms as opposed to commercial terms.[12]

The citizens have a right to access information on the government’s debt portfolio and as such, the governments ought to make this information publicly available, in line with the principles of transparency, responsibility and accountability. Citizen involvement ought to be based on a reasonable opportunity to engage and participate. Thus, the channels through which this information is disbursed, as well as the language used, should be citizen-friendly and accessible to the most vulnerable. Nazir and Yiega state that access to information on the government’s borrowing is necessary to combat illicit financial flows.[13]

Effectiveness and efficiency in development are hinged on the citizens’ ability to participate in the development, financing of these projects, actual construction of development projects as well as their maintenance. The citizens are central to the development and as such, should be afforded access to information on their governments’ borrowing and expenditure as well as the resources collected from the public. Using tools such as participatory budgeting, the citizens have a seat at the table. From formulation, approval, implementation to evaluation and audit, the citizens ought to be involved in the financing of development. Public participation fora as well as the reliance on tools such as the media, present opportunities for the citizens to be actively and meaningfully involved.

Development is a multi-sectoral, multi-stakeholder process. It is continuous and thus should involve all the members of the community. Funding development projects should be done in a manner that is sustainable for the present and future generations, as well as following a set of rules that allow scrutiny by the public thus transparent and accountable. Development cannot be single-faceted and infrastructural development should go hand in hand with socio-cultural development as well as economic growth. This would facilitate sustainable and equitable development.

References


[1] United Nations, Declaration on the Right to Development 1986.

[2] Flávia Piovesan, ‘Active, Free and Meaningful Participation in Development’, Realizing the Right to Development (eBook, United Nations 2013).

[3] Attiya Waris, ‘TOWARDS AN AFRICAN AND KENYAN PHILOSOPHY OF FISCAL LEGITIMACY’ (2019) 1 Journal on Financing for Development.

[4] United Nations, ‘Leave No One Behind’ (UNSDG).

[5] United Nations Development Programme, ‘What Does It Mean to Leave No One Behind’ (2018).

[6] Waris (n 3).

[7] Attiya Waris, Financing Africa (Langaa RPCIG 2019).

[8] OECD, ‘The Impact of the Coronavirus (COVID-19) Crisis on Development Finance’ (OECD Policy Responses to Coronavirus (COVID 19), 2020) <https://www.oecd.org/coronavirus/policy-responses/the-impact-of-the-coronavirus-covid-19-crisis-on-development-finance-9de00b3b/> accessed 5 May 2021.

[9] Stephen Brown, ‘The Impact of COVID-19 on Foreign Aid’ (DEVPOLICY BLOG, 2021) <https://devpolicy.org/the-impact-of-covid-19-on-foreign-aid-20210401-2/> accessed 6 May 2021.

[10] Aby Toure and Daniella Von Leggelo Padilla, ‘Amid Recession, Sub-Saharan Africa Poised for Recovery’ (World Bank, 2021) <https://www.worldbank.org/en/news/press-release/2021/03/31/amid-recession-sub-saharan-africa-poised-for-recovery> accessed 30 April 2021.

[11] Technical Meeting held on 15th April by the OECD, AUDA-NEPAD and ACET ahead of the Summit on Financing African Economies

[12] Waris (n 7).

[13] Afshin Nazir and Vallarie Yiega, ‘DEBT, ACCESS TO INFORMATION AND ILLICIT FINANCIAL FLOWS: AN ANALYSIS BASED ON THE MOZAMBIQUE HIDDEN LOANS CASE’ (2020) 1 Financing for Development 237.

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.