Ireland shuns €13 bn tax bonanza in favour of growth and employment
At a time when Zambia, and many other countries, are trying to maximise tax revenue from big foreign companies, Ireland is doing the exact opposite.
That’s according to an in-depth article this week on the website Mining For Zambia.com.
As a result of its low corporation tax rate of only 12.5%, the article says, many multinationals have relocated to Ireland, creating around 20% of all private-sector employment – around 300 000 jobs.
So earlier this month, when the European Commission ordered Ireland to collect €13 billion in disputed back-taxes from tech giant Apple, which has operations there, politicians and ordinary citizens reacted with fury.
“We will fight it at home and abroad and in the courts,” said the country’s Finance Minister, Michael Noonan. And significantly, a poll showed that 76% of Irish people support this view.
A 2014 report by Ireland’s Department of Finance, Economic Impact Assessment of Ireland’s Corporation Tax Policy, says: “The headline rate of corporation tax is very important for FDI [Foreign Direct Investment] decisions. If Ireland were to increase the 12.5 percent corporation tax rate, it would significantly reduce FDI flows into the country.”
The report adds that lower tax means higher economic growth: “Evidence based on a wide number of countries indicates that a 10 percent reduction in corporation tax could have anywhere between a 0.6% and 1.8% effect on economic growth rates.”
Figures from the Organisation for Economic Cooperation and Development (OECD) show that from 1998, when Ireland started to phase in the 12.5% corporation tax rate, and 2014, total tax revenues have more than doubled, from €24.8 billion to €55.4 billion.
Ireland’s stance on taxation stands in sharp contrast not only to Zambia’s, but that of many other countries, including Britain, France and the United States.
There is presently a widespread distrust of multinationals in other parts of the developed world. It translates into very high corporate tax rates, which is precisely why so many multinationals have relocated to Ireland.
The lesson from Ireland, the article says, is the importance of a low tax rate to attract foreign investment, which drives economic growth.
“Take North-Western province: in the space of barely 10 years, it has gone from a poor, rural region devoid of any notable economic activity, into a thriving mining province whose three new mines – Kansanshi, Barrick Lumwana and Sentinel – now produce more than half of Zambia’s copper,” the article says.
“Employment has grown, businesses have been created and economic development has been rapid – chaotic in the case of Solwezi, and far more planned in the case of Kalumbila – all as a result of billions of dollars of investment at a time when mining tax rates were lower than they are now.”
Zambia Chamber of Mines president, Nathan Chishimba, is quoted in the article as saying: “As a nation, we are inclined to view economic development and the eradication of poverty through the narrow prism of tax receipts and government expenditure… rather than through the wider perspective of economic growth and employment.”
“It’s not wrong to want to maximise tax revenues – after all, they fund the essential operations of government. [But] hitting current taxpayers hard discourages economic activity and new investment, and ultimately stunts future tax revenues.”
Chishimba also emphasises the importance of the Zambian tax authorities being able to monitor and collect all taxes owed.
“This is why we in the mining industry are now strongly supporting programmes designed to build institutional capacity and increase information transparency, such as the EU-funded Mineral Production Monitoring Support Project.”
Countries should focus their efforts on long-term economic growth, rather than short-term tax revenues, the article concludes.
Mate, I hope you are not insinuating that we let foreign investors get away without paying taxes in Zambia. Our country it totally different from Ireland in terms of geographic location as well as technological advancement and several other factors which would dictate how much and who we attract if we lower our taxes. Our’s is predominantly mineral focused economy so if we don’t get enough taxes from there as we develop other sectors then we are being thoroughly dull..Simple question: Would we attract such companies as Apple or Google if we lowered our taxes zero? Methinks not!
UK’s corporation tax was 20%, now at 18%. Everyone looking to attract investment will have to look at their tax structure, it is common economic sense. What the article forgot to mention is those companies mentioned are not the only ones to be headquartered in Ireland. Economic management is similar to appraising an investment project. You weigh which option gives you more benefit. If you think collecting taxes (which no company wants to pay, and if introduced will see others leave) gives you more revenue, then go for that, but most would rather attract investments to create more jobs and aggregate demand in the economy for growth.
These are paid campaigners for the Mines. Mad Bad article! We need the tax to grow our economy, we are not Irish. And it’s an obvious lie that Irish citizens would react with fury to collection of back taxes. In fact the opposite. The reaction against Starbucks, Apple has been a negative one in relation to taxes unpaid. Writer us writing for ‘Thick Africans’ who think everything Westerners do us good for Zambia.
This can only work if these multinational companies were saving their money in Zambia.
Exactly these mines only leave peanuts for wages and operation in Zambia…trying to hoodwink the dull politicans by lobbying for this. Most of these Gobal companies favour Ireland for just purely tax avoidance reasons …imagine companies import produce from South America like bananas and go and dock in Ireland by-passing their intended destination…the produce never even leaves the ship. A large chunk of FDI also comes in from Finance and Banking sectors where the likes of McDonalds, Google , Starbucks etc are solely doing it to avoid tax paying…I don’t think companies will suddenly rush to landlocked Zambia – cost of doing business is too high and that has nothing to with corporate tax.
The Irish are more concerned with having their people working than what you are thinking.
Many questions arise and most important is that most of these companies declare on copper concentrate leave out the many by products such as gold. Also most copper mines have cobalt which I am sure goes without attracting tax since it’s mined together with copper and only separated at some stage of process.
Many questions arise and most important is that most of these companies declare ony copper concentrate leave out the many by products such as gold. Also most copper mines have cobalt which I am sure goes without attracting tax since it’s mined together with copper and only separated at some stage of process.
Who has written this ill researched article; I would be surprised if it was a director of these mining Conglomerates. Really laughable that you are quoting Zambia Chamber of Mines president, Nathan Chishimba…do you know which side his bread is buttered. If you do your research the Irish have always favoured this approach to attract big business from within EU…we are not talking casual jobs but corporate jobs.
Read about “Celtic Tiger” which refers to the economy of the Republic of Ireland from the mid-1990s to the mid-2000s, a period of rapid real economic growth fueled by foreign direct investment, and a subsequent property bubble which rendered the real economy uncompetitive.
I think Zambia should try this. I remember the late Michael Sata Once championed lower taxes. More money in our pockets. The policy was meant to attract more Investment especially in the mines. This was would create more employment. More money in our pockets.
Here you have too many cadres who believe closing a newspaper because of tax and sending thousands into unemployment makes sense. Too many dull characters pa zed!!!!
Companies that provide goods and services in the local market are different from companies who extract resources and export them. Once our minneral resources are depleted these investors will flee to other more fertile territories, so we can only gain froom our mineral resources only once. I am a lay man in terms of these things, so someone more knowledgeable may advise, but I see nothing wrong with having a seperate tax for mining companies and a seperate one for service providers or distributors of goods for local consumption.