Tax policy on the tap in Ghana

December 2nd, 2010

Photo by Charlotte Powell*

A recent report from ActionAid made headlines when it accused SABMiller, the world’s second largest beer company, of avoiding millions of pounds worth of tax in India and the African countries in which it operates.

ActionAid argues that through financial transactions with subsidiaries located in tax havens, SABMiller shifts its profits largely via royalty and management fees to firms in developed countries with lower tax rates. As a result, lower local profits mean less taxable income, and that denies governments the revenue needed to build key infrastructures such as schools, roads, and ports.

On the other hand, Zahid Torres-Rahman on the Guardian’s Poverty Matters blog highlights arguments conflicting with ActionAid’s allegations. Torres-Rahman accurately points out that SABMiller is not breaking any laws in its financial activities. Indeed, in response to the allegations SABMiller denied engaging in “aggressive tax planning” and drew attention to its positive social contributions such as jobs, investment, and dividends to local shareholders. SABMiller also claims that it pays a significant level of tax, although some disagree with SABMiller’s definition of significant.

Both ActionAid and Torres-Rahman agree, however, that governments should do a better job of creating and enforcing tax policies that would both attract investment while limiting tax avoidance. While it’s great that both sides can sing that song, a much bigger choir would inspire a more urgent response.

Small business owners and other citizens are important stakeholders in these issues. As profiled in ActionAid’s report, Ophelia Brakwa, a student in rural Ghana, offers her take: “I am appealing to the companies to pay their taxes so that the government can provide our schools, and light and water, because we are the human resources of the future.”

When confronted with ActionAid’s information on how SAB pays little tax for a subsidiary in Ghana, small business owner Marta Luttgrodt responded, “Wow, I don’t believe it…We small businesses are suffering from the authorities. If we don’t pay, they come with a padlock.” As a taxpayer who sells SABMiller’s beer at her small beer and food stall, Marta pays fixed fees to the Accra Municipal authority in addition to tax owed to the Ghana Revenue Authority.

If reform is to take place, citizens like Ophelia and Marta must join the call for the Ghana Revenue Authority (GRA) to improve its collection of corporate tax. And if that reform is to benefit all stakeholders, reform processes must include all stakeholders – citizens and business leaders alike.

In an off-the-record interview with ActionAid, a senior official in Ghana’s Ministry of Finance acknowledged that Ghana has not adequately addressed the way companies can legally use certain jurisdictions for tax avoidance under Ghana’s current policy. Therefore, Ghanaians must hold their government accountable if they feel injustice in SABMiller’s – and other multinational corporations’– business practices. That requires good democratic governance.

Furthermore, good democratic governance demands that all stakeholders have a say in designing policies to increase public revenue in a manner that is fair to all. That includes participation from citizens, small business owners, government revenue authorities, as well as representatives from SABMiller’s subsidiary companies. Civil society groups and other organizations can do their part by sharing information on the true costs and benefits to hosting multinational subsidiaries, as well as how those businesses operate at the global level.

While increased financial transparency, reformed corporate subsidiary structures, and other solutions proposed by ActionAid could very well increase public revenues for development, grassroots participation from citizens and business in reform efforts would help guarantee that new laws will be effective and fair to all stakeholders. Democratic governance matters, and it may be the only way to ensure tax policy contributes to sustainable economic development that benefits everyone.

* Photograph License: AttributionNoncommercialNo Derivative Works Some rights reserved by EnglishGirlAbroad.

Written by Lauren Citrome

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