Tax avoidance blamed for Africa’s loss of resource income

By Time of article published Feb 5, 2013

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The top 10 global mining companies have an estimated 6 000 subsidiaries, many of which are located in tax havens, Alvin Mosioma of Tax Justice Network Africa told delegates at the Alternative Mining Indaba yesterday.

Mosioma said this complicated network of companies was part of “the flawed financial infrastructure” that resulted in Africa losing a significant portion of its resource income through complex tax avoidance schemes.

He said one of the difficulties facing African governments in their bid to secure a greater share of the wealth generated by their resources was that as a result of the use of complicated corporate structures and tax havens, “it is impossible for any government to know how much profit is generated from its mineral wealth”.

Mosioma said it was not just the mining companies at fault but also their banks, lawyers and accountants who assisted in setting up the financial structures. “How is it possible that you have 3 000 employees in Malawi and three in the Cayman Islands and you can attribute 70 percent of your profit to the operation in the Cayman Islands?” Mosioma said.

He called for greater transparency and also for African governments to stop providing tax incentives, as these merely created avenues for countries to lose their resources.

The indaba, which was attended by hundreds of delegates from across Africa, heard from representatives of communities around the continent about the need for a more equitable redistribution of wealth from mining activities.

A note prepared for the indaba argued that one of the major problems facing Africa was the “very limited capacity within governments to negotiate good mining contracts especially with multinational companies”.

“In most cases, the multinational companies have skilled personnel and negotiators while governments do not. Mining companies may bring consultants, bankers, economists and lawyers to the negotiating table and often outnumber government… teams.

“Access to this many resources, knowledge and expertise too often means that contracts ultimately benefit the mining companies and the government will always get the short end of the stick,” the Economic Justice Network’s briefing note said.

John Capel of the Bench Marks Foundation told Business Report that while mines might bring in revenue for the government and shareholders, the land on which they operated belonged to communities. “A legal licence does not equal a social licence to operate.”

Capel urged mining houses in South Africa to reconsider the way in which they operated.

In the short term, they should review their corporate social investment, which “must be done in-house and not outsourced to so called experts” and should involve consultation with communities.

With regard to wages, Capel said mining houses needed to develop a policy that allowed workers to “justly benefit from their labour and that meets their basic needs”.

The mining houses should steadily increase the numbers of local community members and should stop using chiefs and local councillors to recruit.

Capel also urged mining houses to stop actively recruiting “politically connected individuals, senior administrative and government personnel onto company boards or as shareholders”. – Ann Crotty

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