1. Tax and Inequality Savior Mwambwa Policy & Advocacy Manager Tax Justice Network –Africa International Tax Justice Academy 10 th -14 th August 2015 Kenya

3. Inequality Social inequality is the existence of unequal opportunities and rewards for different social positions or statuses within a group or society.

4. Africa- A hopeless continent? ‘’Africa is still the hopeless continent……… a "scar on the conscience of the world," –hosts of G8 summit Gleneagles- Scotland, 2005 2000 Edition

5. “Africa Rising” ( 2010)

6. TJN-A ‘s work on inequality Africa Rising? Rising Inequalities and the essential role of taxation in sub Saharan countries – TJN-A & CA report, July 2014

8. What this report covers: Income inequality trends Tax revenue trends – National and international – Tax types – Tax reforms In 8 countries – Ghana, Kenya, Malawi, Nigeria, Sierra Leone, South Africa, Zambia, Zimbabwe Special focus on Kenya and South Africa

9. Why do the report? Africa as the subject of a new ‘growth/optimism story’…..but little attention to income inequality trends "It cannot be said often enough, that overall progress remains too slow and too uneven; that too many Africans remain caught in downward spirals of poverty, insecurity and marginalisation; that too few people benefit from the continent's growth trend and rising geo-strategic importance; that too much of Africa's enormous resource wealth remains in the hands of narrow elites and, increasingly, foreign investors without being turned into tangible benefits for its people." Kofi Annan, Chair of the Africa Progress Panel

10. Why do the report? Increased interest in tax reform in Africa Little analysis of tax systems and inequality in Africa Particular impact of illicit financial flows (IFFs) and tax dodging on the continent

11. Key Findings Inequality rising in 6 out of the 8 countries Sierra Leone: only country showing decline (2003-2011 data) Zimbabwe: no data Richer getting richer + poor getting smaller shares of income IFFs high and rising

12. At the same time…….. Limited direct taxation of income and wealth HNWI tax evasion major, upcoming issue (eg. Kenya and South Africa) Big tax losses due to generous tax incentives for companies Governments continually forced to tax the poor (eg. Kenya, Malawi, Zimbabwe….) Struggles and limitations to reform

15. Other countries to note: Kenya: income inequality rising since 1994 Zambia: rising since 2003 – now at highest ever level (57%) – analysis shows poverty should have fallen but is increasing because of rises in inequality

16. South Africa National survey data: – 63% in 1993 70% in 2008 – 10% poorest have 0.2% of income – 10% richest have 51% of income – Data shows super-rich driving increase at top Target in national development plan “an embarrassment” – 60% “South Africa does not have a poverty problem! We have a wealth problem!” Budget Justice Coalition

17. Underestimating inequality…. Consumption surveys vs. income surveys Property + overall assets not included Earnings from capital offshore not measured TJN: – “both wealth and inequality are being dramatically underestimated to a very significant degree in every study in every country”

18. Inequality and taxation CA and TJN-A position: – Those who have less should pay less; those who have more should pay more – Redistributive potential of tax system is of central importance (especially in highly unequal societies in SSA) – Provides resources for public spending which should also specially target poor and marginalised in effort to reduce inequalities

19. Tax revenue trends in SSA 15% 18% of GDP (1980-2005) OR 13% 14% of GDP (1980-2005) without natural resource revenue 18% 20% of GDP (2000-2009)

20. Illicit financial flows and taxation IFFs from Africa highest in world – US$50bn: average annual outflow between 2000 and 2008 – Nigeria and South Africa: leaders in terms of volume of regional outflows. – IFFs as % of GDP in GFI rankings in 2013: Nigeria (8 th ), Zambia (9 th ), Zimbabwe (13 th ), Malawi (14 th ), and Sierra Leone (15 th ) – £9.4bn customer deposits in banks in Jersey from Africa (vs. £3bn from China) IFFs from Africa rising IFFs = Tax loss: inability of African tax authorities to tax income and wealth offshore is key part of the picture

21. Impact of IFFs on tax policy So much income and wealth generated in Africa is offshore and cannot be taxed Policymakers ignore taxation of income and wealth, and focus on easier indirect taxation African tax systems cannot be progressive – and used to tackle income inequality – in this context.

22. IFFs and trade mispricing Trade mispricing (commercial tax dodging) is know to be the biggest element of IFFs Christian Aid data on this: – Ghana trade mispricing amounts to tax loss of 27% of corporate income tax – Sierra Leone: tax loss of 15% of corporate income tax

23. Some highlights High levels of inequalities Huge challenges in ensuring tax system is progressive and effective in redistributing wealth. KRA is continually failing to meet its revenue targets. Only 100 HNWI are registered in Kenya out of an estimated potential 40,000.

24. What do you think?

25. Africa is not hopeless!! but But rising only for the few

26. Key Recommendations Government should focus on raising tax revenue, with tax equity at the centre of the tax reform and revenue raising strategy. (focussing on CIT, PIT, property taxes and other wealth taxes, such as capital gains taxes), so as to increase tax revenues in an equitable manner. Focusing on the enforcement of PIT and CIT, with a particular focus on HNWIs and on growing sectors such as telecommunications, banking, construction, finance and tourism. Investigating the distributional consequences of indirect taxes such as VAT and ensuring that any reforms which increase rates, change exemptions, or bring in new taxes are fully analysed for their impact on the tax burden borne by poor people.

27. Requiring companies to provide statutory accounts and creating central registers where these accounts will be accessible by the public. Establish public registers of the beneficial owners of companies, foundations and trusts. Increase fiscal transparency at the national level, ensuring citizens have regular access to simple, straightforward information about tax collection and compliance and how revenue is spent.

28. Tax incentives Abolish discretionary tax incentives as well as the discretionary powers vested in individual government officials that enable the granting of such incentives. Prioritise an increase in social spending as a key part of fiscal reforms and making a clear link between tax reforms and revenue-raising strategies and the public budget allocations.

29. Regional Cooperation Governments in sub-Saharan African should coordinate their tax policies and improve their access to information across countries as well as push for global reforms. Measures should include: Pursue regional cooperation in tax matters to work towards tax harmonisation within trading blocs in an effort to challenge tax competition and the race to the bottom. Call for a global system for automatic information exchange, cooperate with each other to develop the capacities required to use the information exchanged effectively as a means to tackle tax evasion.

30. Signing the African Agreement on Mutual Assistance in Tax Matters and supporting ATAF in promoting effective information exchange for tax purposes across the continent. Working closely with the High Level Panel on Illicit Financial Flows from Africa to develop and implement a set of continental guidelines on these issues and ensuring there is a unified African voice to advocate for the global-level reforms outlined below.

31. ‘If our goal is to slow migration, then the best way to do so is to work for a more equitable global system. But slowing the migration is an odd goal, if the real problem is global inequality’. – Aviva Chomsky

32. What you can do!