The paradise papers have involved the investigation of one of the biggest ever leaks of around 13.4 million documents from Appleby, an offshore law firm. These papers reveal the tax affairs of the rich and powerful around the world.
It is key to note that not all people listed have broken the law. These actions only become unlawful when tax avoidance methods are used. Profit shifting for example is one of the main ways that facilitates tax avoidance. This method is used when a multinational company registers its headquarters in a low corporation tax jurisdiction therefore accounting for its profits in that country, instead of the country which it makes sales in. Generally, most countries are a tax haven for foreigners mainly because every country welcomes and encourages foreign investments. .
Political corruption is at its peak in countries around the world. Politicians do not care about their native land but their own future and that of their families. Global Financial Integrity estimated that Mauritania loses around 12% GDP, Chad loses 20% and the republic of Congo loses 25% from illicit financial outflows such as tax evasion and money laundering. Africa is losing more than $50bn (£33bn) every year in illicit financial outflows. This clearly shows the hypocrisy of the rich politicians and businessmen.
Some of the African names in paradise papers include Sally Kosgei the former minister of agriculture in Kenya, Ellen Johnson Sirleaf, the current president of Liberia and Sam Kahamba Kutesa Uganda’s current foreign minister. Kutesa’s companies were labelled high risk by Appleby as it was found that Kutesa had provided false information regarding his trust which he claimed existed to separate his government income from his personal assets.
In Transparency International’s 2016 corruption perception index, despite being models of stability in the region, Ghana was the second worst regional decliner in the index. The rise in corruption in Ghana led to the population expressing their frustration in the 2016 election. This resulted in an incumbent president losing for the first in the country’s history. At the bottom of the list is Somalia. With increased instability and its elections plagued by corruption and malpractice, this is the tenth time Somalia has been rated by the index as the most corrupt country in the world.
Is there a solution for this big problem of tax avoidance? If this practice persists, the imbalances in society will never improve. Countries and islands which are tax havens need to form more strict regulations which ensure that all people including non-nationals who are owners of big companies, foreign investors and politicians pay their equal share of tax. This may require forming breakthrough agreements with non-tax haven countries and implementing legislation which prevents illicit flows.
Featured image | Countries implicated in the Paradise Papers | wikimedia commons
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