UK Companies Cheat African Taxes

Read this BBC article backwards. It spoils the punch-line, but helps clarify an official British perspective on trade with Africa:

Britain’s acting High Commissioner to Kenya, Ray Kyles, said it was not the job of foreign governments to encourage their corporate investors to pay tax.

“Matters about tax are a matter for the Kenyan government,” he said. “Our role here is to recognise the advantages to Britain of increasing its exports and in helping British companies look for opportunities overseas.

“We think there’s a win here.”

Opportunity in Africa. That sounds good. Unfortunately, the companies are not actually negotiating low tax rates or working for exceptions. It turns out the opportunities are actually hacks to evade controls:

In Mombasa, Kenya’s main port town, the tea board has an official working with customs officials to investigate some startling discrepancies.

Kenya’s official export statistics say almost 50 million kilos of tea left there in 2005 bound for Britain.

But the British import statistics showed 75 million kilos – one and a half times as much – arriving here from Kenya.

A former head of domestic tax for Kenya, Jack Ranguma, told the programme he believed the mismatch was created by customs fraud.

Opportunity for fraud? Something tells me this perspective might have some colonial underpinnings. But even if it does not, here is a sobering perspective on Mr. Kyles’ concept of a “win” for the UK:

The problem is not “African corruption” per se, or that Africans are stealing from their government treasuries or corporate entities than other peoples. Africa, after all, did not produce Enron and WorldCom. The problem is that the moral consequences of corruption are greater in Africa than they are in the West. In the West, the impact of government and corporate corruption, of which there is a lot, is absorbed by the sheer size of Western economies. The shock of corruption is therefore hardly felt beyond the media frenzy that characterizes the prosecution of culprits and the lamentations of individuals who lose savings and investments to corporate scandals. Such corruption hardly ever translates to infrastructural problems for society as a whole, much less cause the breakdown of political institutions. Despite widespread incidents of corporate and public corruption in the United States, for instance, public utilities like electricity, water, and telecommunications, and social infrastructures such as roads, hospitals, and schools are hardly ever disrupted.

In Africa, on the other hand, corruption kills, literally. The embezzlement, mismanagement, or misapplication of public funds often leads to a cessation of certain social services, or the non-completion of a road, school, or hospital project. The deterioration and scarcity of infrastructure and social services have worsened in direct proportion to the corruption problem. The loss of public funds to corruption translates inevitably to a lack of medicine in a rural hospital; a lack of access to education for millions of African children; a lack of potable drinking water and electricity for millions of Africans; and a lack of good transportation infrastructure. All these can, and do, lead to millions of preventable deaths yearly.

There is no liability to the companies cheating the foreign system. Easy to see how someone thousands of miles away might mistakenly confuse foreign tax evasion with a positive outcome — they do not measure anything but their own profit. On the other hand, with truly corrupt systems abroad, paying the taxes might end up with the same basic outcome than if they did not pay the tax and have accountants scratching their head. But the point is not whether fraud justifies fraud. It is that the UK appears to be condoning corporations that hack around foreign controls.

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