…Through smart accounting
…New study reveals
By Frederick ASIAMAH
A new study has estimated that, every year, Ghana loses the cedi equivalent of $340.4 million in tax revenue that multinational companies avoid paying.
The figure works up to upwards of GHC1.504 billion (using exchange rate of GHC4.42 to a dollar per Bank of Ghana’s forex figures provided last Thursday.)
The details on Ghana are included in a report, which estimated global losses to be around $500 billion a year. The report was released last Wednesday by the Tax Justice Network, a non-partisan expert network focusing on tax avoidance and tax havens.
The TJN said “The figures appear in a study published…by the United Nations University World Institute for Development Economics Research (UNU-WIDER, in Helsinki).”
The researchers evaluated losses countries incur as a result of profit shifting by multinational companies.
Profit shifting is the process whereby companies move profits from their subsidiaries in higher tax countries, where the real economic activity takes place, to other subsidiaries in ‘tax havens’. This is typically achieved by the multinational company setting up internal trades which exploit international tax rules to move taxable profits from one jurisdiction to another.
Ghana angle
If a 3-unit classroom block costs GHC160,000, the GHC1.504 billion in question can build 9400 of the school blocks.
The study further details that the estimated $340.4 million tax loss represents 0.75% of Gross Domestic Product (GDP) and 4.72% of Ghana’s total revenue. In addition, it is 15.83% of total government revenue in GDP terms.
Reaction
Immediate reactions from the Integrated Social Development Centre (ISODEC) and ActionAid are that the new figure is even modest.
According to Bernard Anaba, Policy Analyst at ISODEC, “various studies and different approaches have been used to estimate tax losses. And mostly because they are estimates, you cannot get exact amounts.
“For example, the Global Financial Integrity estimated that Ghana lost about $4bn over ten years. This calculate at about $400m per year. ISODEC also estimated trade losses at about $7.2bn over 13 years. This is about $553m per year,” he said.
Anaba, also a tax justice campaigner, concluded: “So different reports will give us different estimates because the methodology also varies. But generally what it says is that these various figures confirm one thing: Countries are losing so much money.”
His counterpart at ActionAid, Benjamin Tawiah said “Like other credible research data from academia and policy think-tanks, these findings from the Tax Justice Network confirm ActionAid’s position on Tax Incentives and illicit financial flows.
“As part of our Tax Justice campaign, we have uncovered systemic avoidance and evasion of the tax obligations of multinational companies, which denies the economies of developing countries financial resources needed for national development,” he stressed.
“These incentives are given to encourage and induce foreign investment. However, the real motivating factors for these multinationals are political stability, energy supply and other economic considerations,” he opined.
Tawiah revealed that “Every year, developing countries lose $200 bilion in harmful Tax Incentives. In Africa, we throw away about $50 billion and 15 ECOWAS countries, including Ghana, Nigeria and Senegal, give away $9.6 billion while Ghana alone loses $2.27 billion a year.
“While granting needless tax incentive denies every sector of the economy the needed development, people living in poverty, especially women and children, are those who bear the brunt of these harmful policies,” he posited.
On how to resolve the problem, he said “Our longstanding position is that we should block these revenue leakages and use the critical resources to the benefit of people living in poverty.”
The study
A statement issued by TJN read: “Applying a methodology developed by researchers at the International Monetary Fund to an improved dataset, the results indicate global losses of around $500 billion a year. The figures appear in a study published today by the United Nations University World Institute for Development Economics Research (UNU-WIDER, in Helsinki).
“While this global total is more cautious than the $600 billion estimate of the IMF researchers, the distribution is also different. Losses are now estimated to be even more intense in lower-income countries in relation to GDP and as a proportion of total tax revenues. In addition, today’s estimates include the full country breakdown.”
TJN chief executive, Alex Cobham and Petr Janský of Charles University in Prague, carried out the analysis which recreates the methodology of a study published by researchers at the International Monetary Fund in 2016. Cobham and Janský replicate the IMF analysis, and then repeat it using a more robust source of national tax revenue data.
The data showed that whilst the largest losses occurred in rich economies such as the United States, lower-income countries were the biggest victims of profit shifting. Some countries, such as Argentina (4.42%) lost a significant proportion of their GDP to profit shifting. In Chad, the estimated losses to profit shifting were larger than all of the (non-resource) taxes collected in the country that year. In Pakistan the losses were 40% of tax revenues. While any estimates of this deliberately hidden phenomenon are necessarily uncertain, the order of magnitude indicates that the economic development of countries may in some cases be significantly undermined by the activities of multinational companies.
On the publication of the report Cobham, chief executive of the Tax Justice Network said: “These findings support the long-held view that it is lower-income countries that suffer the most intensive losses due to tax dodging by multinational companies. The current status quo, in which international tax rules are set at the OECD where lower-income countries lack any effective voice, is simply untenable.”
Janský said: “There is still a lot of work to be done to fully understand the impacts of tax avoidance across the world, but this study is an important step forward. Combining the methodology of the IMF researchers with the improved data from the International Centre for Tax and Development allows us to move a little closer to the real scale of profit shifting. And by publishing estimates of global tax avoidance at the level of individual countries, and making these available to other researchers and policymakers, we hope to advance the debate.”
