With billions of dollars being lost yearly by developing countries to tax treaties from multinational companies, a new report by ActionAid has shown that African countries would continue to be deprived of vital revenue if tax deals are not renegotiated.
Indeed, worried by the terms of treaties sometimes signed by many developing countries in the course of attracting foreign direct investments to their economies, ActionAid noted that such treaties facilitate tax avoidance schemes, thereby leaving many nations vulnerable and poorer.
According to ActionAid in its latest report, tagged, “Mistreated”, global corporations use tax treaties to limit their tax contributions in the developing countries where they generate profits, adding that tax treaties that aggressively lower tax contributions in these countries are harming revenue collection and their rights.
ActionaAid noted that while developing countries continue to experience laxities in their tax treaties, developed countries rely heavily on revenue from capital gains tax.
“The UK raised £5.8 billion (US$8.8 billion) from capital gains tax in 2014. This provided enough money for the UK to pay all of the costs of world-class maternal health care for two million women. Not all developing countries collect capital gains tax, and those that do often collect it on only a limited class of assets. When they do though, it can have an enormous impact”, it added.
While Nigeria, Rwanda, South Africa, Zambia, Malawi and Mongolia have all recently either cancelled or renegotiated tax treaties, the report noted that a lot still needs to be done as more than half a billion dollars allegedly left from Nigeria to Dubai in payments for royalties, management services and technical fees from a multinational company.
The agency identified the three tax rights that urgently need to be restored to include profit tax, withholding tax and capital gains tax.
“Under profit tax, tax treaties set the rules about how established a foreign multinational has to be before it pays tax on its profits. This has led to absurd results, such as some foreign corporations employing thousands of people without having any liability to pay local profit taxes.”
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