ActionAid has urged the Zambian government to investigate high network-worth individuals, corporate bodies and public officers operating offshore accounts and investing in tax havens.
In a statement made available to the the ActionAid said that those engaged in illegal financial dealings should be criminalized and that Government should take action to increase transparency in the country’s tax system, starting with a public register of a beneficial ownership.
According to ActionAid, this policy would reveal the true owners of anonymous companies and trusts, shining a light on the tax and that government should close all the loopholes that allow for tax avoidance.
Below is the full statement
ACTIONAID URGES GOVERNMENT THROUGH THE FINANCIAL INTELLIGENCE CENTRE TO INVESTIGATE HIGH NETWORK-WORTH INDIVIDUALS AND CORPORATE BODIES OPERATING OFFSHORE ACCOUNTS AND INVESTING IN TAX HAVENS
The recent revelations in the Paradise papers about how rich and powerful individuals, politicians and Multinational Corporations (MNCs) use Tax Haven to shift profits from one jurisdiction to another, echoes our demands about the need to address Illicit Financial Flows (IFFs).
The Paradise Papers developed by an International Consortium of Investigate Journalists (ICIJ) shows how rich and power individuals and Corporates use tax haven which are jurisdictions that offer secrecy on financials of individuals and business entities and very low or zero taxes.
Although it is not legal to move profits to a tax haven however the challenge is that individuals and business entities hide profits in tax havens far away from the tax authorities in the countries where the profits are generated.
This then is the question of morality. Mostly, especially in developing countries like Zambia the appetite to attract foreign investment is big such that a lot of tax incentives are given to investors. As a result, due to tax incentives, investors may pay very low taxes or may not be paying tax for a period of time.
Some of the MNCs have registered subsidiaries in tax haven as such they trade with those companies. For instance, company A in a developing country might procure services or goods from company B which is a sister company incorporated in the tax haven. Company A will pay out a lot of money for the goods or services procured from company B. Often times the cost of the price of goods and services is beyond the market price. Such a transaction enables the same company operating as company A and B to move profits in a Tax Haven.
The Paradise Papers leak also includes references to Illovo Sugar operating in Zambia as Zambia Sugar.
This revelation vindicates us (ActionAid).
According to our study titled “Sweet Nothings” we established that in November 2007, Zambia Sugar borrowed US$70 million (ZK280.5 billion) from two commercial banks, using the money to expand its huge sugar estate in Zambia.
Given that loan repayments attracts Withholding Tax (WHT) on interests, to avoid paying WHT on interest payment, the loan was channeled through Illovo Sugar Ireland, with the banks actually lending the money to the Illovo Sugar Ireland, which then made an identical matching loan to its sister company, Zambia Sugar.
By channeling the loan through Illovo Sugar Ireland, WHT on interest payment is avoided because then the Zambia-Ireland Double Taxation Agreement (DTA) denies Zambia any right to tax interest payments, or most other international payments from Zambia to Ireland.
Routing the loan via Ireland thus cancels Zambian withholding tax on these payments.
Lastly, we urge government to investigate high network-worth individuals, corporate bodies and public officers operating offshore accounts and investing in tax havens. To this effect, those engaged in illegal financial dealings should be criminalized.
Government should take action to increase transparency in our tax system, starting with a public register of a beneficial ownership.
This policy would reveal the true owners of anonymous companies and trusts, shining a light on the tax. In addition, government should close all the loopholes that allow for tax avoidance.
This includes reviewing and renegotiating outdated Double Taxation Agreement’s (DTAs) to include good strong provisions such as higher caps on WHT taxes.
On the international stage, the Zambian government should push for an Intergovernmental tax body that will seek to fairly and transparently address tax grievances.