Unprecedented economic growth in a number of African countries is going hand in hand with soaring inequality, which national tax systems are failing to address, according to a new report on tax systems.
Tax Justice Network-Africa and the international development agency Christian Aid point out in their report that the surge in inequality is not simply the result of the rich getting richer. Instead, there is clear evidence that in many cases growth is taking place at the expense of the poor, who are becoming increasingly impoverished.
As a result, progress in human development has been disappointingly limited given the volume of wealth created during a decade of high growth across the continent The report, ‘Africa Rising? Inequalities and the essential role of fair taxation’, says tax is one of the most potent tools governments have to address inequality, but tax systems in many African countries currently do not fulfil that function.
Instead, taxes have been introduced that disadvantage the poor, while tax systems that could be used to redistribute wealth more fairly are being undermined by tax dodging and illicit finance flows facilitated by off-shore secrecy.
The report investigates income inequality in eight sub-Saharan countries, Ghana, Kenya, Malawi, Nigeria, Sierra Leone, South Africa, Zambia and Zimbabwe, and examines the ability of the tax systems in each country to raise money needed to address poverty by taxing companies and individuals with higher incomes.
Alvin Mosioma, spokesperson for Tax Justice Network - Africa, says the findings showed inequality is becoming a problem that should be of “huge concern” to many of the governments concerned.
“Inequality has been exacerbated by the growth model in many countries, which has seen a concentration of income,” Mosioma says.
“It also reflects the inability of governments to tax the proceeds of growth, either because so much is given away in corporate tax breaks or has escaped offshore into tax havens. Until tax dodging is tackled effectively, nationally and internationally, and illicit finance flows from the continent halted, economic inequality will continue to rise.”
He added that a forthcoming report from the African high-level panel on illicit financial flows from Africa, chaired by former South African president Thabo Mbeki, would present a key opportunity to recommend practical ways to address the problem.
“The panel has been looking at the scale of illicit wealth leaving Africa and investigating what can be done. This could not be more critical. Speaking with a unified African voice would have a huge impact in advocating for global change,” he said.
Sophie Powell, Christian Aid’s Africa policy and advocacy manager, said: “African governments at present are finalising their position on the framework that should succeed the Millennium Development Goals at the end of 2015. They and other governments globally must prioritise the building of fair taxation systems to address inequality at its core.”
“At present, while discussions on tax reform take place among the G8, G20 and OECD, it is still far from certain whether developing countries in Africa and elsewhere will be included in, or benefit from, the changes being discussed.”
The report examines the relationship between the national taxation systems in the countries examined and international taxation issues. Some of the key problems it identifies include, among others, reliance in many parts of Africa on natural resource extraction, a sector the report says “is known to be rife with tax dodging techniques.”
The report identifies tackling financial secrecy and tax havens as key to reform.
“If countries in Africa cannot tax income and wealth correctly, they will shift the tax burden onto the poor,” it says.
“While individual governments must be held accountable for their policy choices, the international community must shoulder a lot of the responsibility for increasing economic inequalities and for the shortcomings of tax systems and public finances in sub-Saharan Africa.”