Pandora Papers should be more than Pieces of Information
Any money earned from a country attracts tax which is in turn used to finance health care, education, create jobs, expand the economy and make food affordable for people.
By Fidélité Nshimiyimana Fidélité
You must have heard of the Pandora papers that exposed how high-level leaders, politicians, public officials, celebrities and prominent business persons had been busy brewing huge sums of money and sending it to “cool down” in various offshore accounts. These Papers, which have also been referred to as “Panama papers on steroids” reveal a small portion of the estimated $11 trillion in undeclared assets held offshore globally leading to annual tax losses of more than $182bn.
Pandora Papers investigation was the world’s largest journalistic collaboration that involved more than 600 journalists from 150 media outlets in 117 countries. The investigation was based on a leak of confidential records of 14 offshore service providers that give professional services to wealthy individuals and corporations seeking to incorporate shell companies, trusts, foundations and other entities in low-or-no-tax jurisdictions. They were released by the International Consortium of Investigative Journalists and they left many angry, in disbelief and highly disappointed! Though many individuals from various walks of life were listed in the scandal, it is unsettling to note that more than 330 politicians exposed by the leak were from more than 90 countries and territories. In Africa, 50 politicians and public officials from 18 countries were linked to offshore accounts also referred to as tax havens.
Leaders who should be promoting national efforts such as Domestic Resource Mobilisation (DRM) , used entities in secrecy jurisdictions to buy real estate, hold money in trust, own other companies and assets. This is crucial to highlight because when a nation fails to raise sufficient domestic resources to meet its budgetary needs, it seeks alternative financing means, one of them being borrowing. You see, DRM refers to the generation of savings from domestic resources and their allocation to economically and socially productive investments. Such resource allocation can come from both the public and private sectors. The public sector does this through taxation and other forms of public revenue generation. Therefore, when individuals and corporations heavily evade tax through stashing their mega wealth in offshore accounts, it means they heavily and indeed immorally deprive their countries of residence and operations much needed national resources for immediate use and sustainable development.
Such money movement is facilitated by countries whose laws and policies provide secrecy and limited taxation to wealthy individuals thus creating a loophole through which a nation is robbed off tax revenue and capital that could have been used to provide social services for people, promote development, investment, creation of jobs as well as servicing debt obligations which wouldn’t be as high if funds were available through DRM, therefore nations potentially borrowing less. The tax regime in most African countries is heavy handed in taxing the common citizen while being very lenient to the elite, therefore promoting inequality.
DRM is also insufficient in the extractive sector as much of the benefits from Africa’s mineral resources and extractives are not felt in Africa at the same proportion that they are exported. For example, Zambia which is the second biggest copper producer in Africa, still has 60% of its population living on less than a dollar a day. Glencore, a multinational company that mined and traded copper from Zambia until the government took over in 2021 (using a loan of $1.5 billion) generated more revenue for Rüschlikon; a village in Switzerland with very low tax rates. Zambia’s copper has made the residents of this village very wealthy as has been documented by the ‘Why Project’, in the documentary ‘Stealing Africa’ “A lot of people think we in the west have been extremely generous in the amount of funding that we provide to the developing countries and particularly to Africa, but globally our estimate of money flowing from developing countries is ten times the amount of foreign aid flowing into developing countries” ˷ Raymond Baker, Founding President of Global Financial Integrity. Another example is the Democratic Republic of Congo, whose estimated wealth in natural resources sits at USD 24 trillion, making it a very wealthy nation on earth regarding extractives. However, this has done very little in alleviating poverty, as it is ironically among poorest countries on earth hence dependent on foreign aid while also being at moderate risk of debt crisis. Therefore, besides Pandora papers’ revelation, mother Africa has been losing its resources in many forms of illicit financial flows.
The Harare Declaration posits that “Africa’s DRM efforts are hindered by an economic and financial architecture that promotes profit shifting, aggressive corporate tax planning behaviour, overly generous tax incentives and illicit financial flows. The current architecture has thus failed to deal with these pervasive behaviours which lead to a perpetual cycle of tax revenue shortfalls, deficient investment in economic growth and job creation compounded by debt accumulation. DRM is essential for Africa to break this cycle of unsustainable debt burden which is often transferred to citizens in the form of regressive taxes, opaqueness, corruption and limited accountability”.
To fill financing gaps, many countries borrow and some of them have done so in recent decades with a ravenous appetite leading to unsustainable debt levels and full-blown debt crisis in some cases. The latter easily causes further economic deterioration, forces painful fiscal adjustments, minimises health and education, threatens food and shelter security, and can cause social unrest, political tensions which could in turn fuel insecurity and violence.
With this background in mind, let’s connect the dots!
Some may argue that there is nothing wrong with someone choosing to keep their own funds in offshore or onshore accounts. It’s their money, right? However, these points below show immoral and unethical aspects that harm people as a result of hiding money in tax refuge:
· Any money earned from a country attracts tax which is in turn used to finance health care, education, create jobs, expand the economy and make food affordable for people. When these services are well financed, countries are likely to borrow less. If they are not, the opposite is likely to happen.
· The lack of jobs and high cost of living that is caused by unavailability of sufficient national resources (because a huge portion of it gets syphoned out of the economy to secret accounts), make people’s lives highly miserable. There have also been many cases of troubled mental health and suicide as people increasingly become hopeless and opt to end a life that they find too hard to cope with as they don’t see any light at the end of the tunnel.
· If all those many billions were not moved to tax havens, we would not have many countries in debt crisis or at risk of the same as African countries would be able to raise more domestic resources and they would thus require less loans to finance their developmental needs. What is most upsetting is that in many cases, Africa borrows its own money that shifted territories through tax evasion and other forms of illicit financial flows, and it repays it even with high interests.
Going forward and first of all, we should not allow policymakers to put Pandora’s Papers back in the box, because there were other “papers” that were released before but perpetrators did not stop their secret harmful acts. Therefore:
· African nations should enact a Fiscal Responsibility Act which will draw on international good practices that will result in greater efficiency in the allocation and management of public expenditure, revenue collection, debt control and transparency in fiscal matters as guided by the African Borrowing Charter. So far there have been some promises or steps to ensure what Pandora papers revealed doesn’t happen again, namely a bipartisan group of United States lawmakers which introduced legislation that would, for the first time, require trust companies, lawyers, art dealers and others to investigate foreign clients trying to move money through the American financial system. Hopefully other countries will borrow some notes from the above and localise accordingly.
· Legislators must also be well equipped and willing to play their role to conduct oversight over the executive branch including government ministries to ensure that policies and practices that protect and promote DRM are implemented for the good of the people. Media have done a brilliant job of bringing information out, other actors must catch the ball and score some changes in curbing tax evasion, profit shifting, unsustainable debt and so forth.
· Now that Panama Papers, Paradise Papers, Mauritius leaks, Pandora Papers and others have shed much information on tax havens and their tax evaders’ clients, including a fraction of what is stored in their accounts, what do we do with this information? Do we just get angry and wait for the next leak? No! Africa must make rules on this tax evasion matter that keeps on ballooning debt levels that in turn, hurt social spending.
· Of course, we are aware that since some African leaders are agents and beneficiaries of the offshore tax havens; they are therefore not determined to institute policies and structures to deal with illicit financial flows because these would hurt their selfish ambitions. That’s the reason why we as citizens, must always remember that hyenas cannot watch over goats. We must carefully vet political candidates and single out women and men of a proven record of transparency, accountability, and good Governance. Whenever there are elections in your country, vote and vote wisely for your own sake and for the sake of those that you care about!