Marta Luttgrodt, whose stall selling food and beer stands in the shadow of Ghana’s Accra Brewery, is one of the many losers in a clever game of international smoke and mirrors that revolves around tax systems. Corporate tax avoidance drives poverty in developing countries and sucks funding from crucial public services including healthcare, schools and sanitation. Meanwhile, small businesses like the one run by Luttgrodt get slapped with tax bills they can barely afford.
In urban Ghana, informal sector taxation is primarily a tax on women. The informal trading sector is dominated by women, with less than 2% of them working in businesses employing 30 or more people. Women are also the biggest losers when it comes to companies avoiding corporate tax. They are often the first to forego health, education or employment opportunities because of cuts to public services, and the effects can be lifelong, even impacting the prospects of the next generation.
In 2013, during the UK presidency of the G8, David Cameron used the summit in Northern Ireland to make bold promises on tackling tax dodging. On Thursday, the long-promised reforms will be presented by finance ministers, including George Osborne, at a dinner on the eve of the annual International Monetary Fund and World Bank meetings in Lima, Peru.
But the reforms fall far short of what developing countries need; they are little more than a sticking plaster on a wounded system.
While the finance ministers will enjoy fine wine and gourmet cuisine, Marta charges her customers 90p for a bottle of Accra Brewery’s beer. Her business makes a profit of about £220 a month. She and her three employees work hard for this success, opening for business at 6.30am daily. Things are not easy; the proceeds from Marta’s business, combined with her husband’s salary, must pay for the education of two children as well as the family’s living expenses.
Ghana’s government wants to bring women like Luttgrodt, who trade in the informal sector, into the tax system. She pays a fixed income tax based on the size of her business – £11 a year to the Accra municipal authority, and £9 a quarter to the Ghana revenue authority.
Accra Brewery offers a rather different story. Its parent company is SABMiller, and it controls more than 30% of Ghana’s beer market, yet it is remarkably unprofitable. Between 2007 and 2010, Ghanaians spent £63.3m on its products. Yet it managed to make a pre-tax loss of £3.07m.
ActionAid’s groundbreaking Calling Time report found that Accra Brewery’s tax bills for the four years amounted to a derisory £216,000. For three of these four years, it paid no income tax at all.
The IMF estimates that, by shifting profits around on spreadsheets, multinational companies deprive developing countries of more than $200bn a year in tax revenues. That money is sorely needed.
Women in Ghana are 70 times more likely to die in childbirth than women in Britain, and children are 13 times likelier to die before the age of five. One-third of the country’s population is infected with malaria each year. Ghana ranks 138 out of 187 countries on the UN’s human development index.
Tax revenues should be available to offer women and girls a lasting route out of poverty by funding healthcare, schools, water and sanitation. Yet, as a new report from ActionAid sets out, the international tax reforms to be discussed today will fail to fully tackle industrial-scale avoidance by multinationals, do not address the main concerns of developing nations, and will not deliver the change that is needed for the poorest people in the world.
The process was doomed from the beginning, when it was decided it should be carried out by a group of the world’s richest countries with only limited consultation. The UK pushed for the inclusion of a limited number of poor countries in the Organisation for Economic Cooperation and Development (OECD) process, but blocked other moves intended to give poor countries a greater say.
At the financing for development summit in Addis Ababa in July, developing countries called for tax reform talks to be shifted to the UN, where all countries have a voice. The door was slammed in their faces. Instead, a small club of wealthy nations will tell the world to implement a plan that will tackle neither the pressure of tax competition – which leads governments to offer big tax breaks – nor the limits placed on the taxing rights of developing countries by tax treaties.
ActionAid agrees with developing countries’ position that if the UN played a central role in global tax policy, the results would be better and fairer for poorer countries. The UN would give everyone a voice in policymaking, rather than limiting influence to the richest nations.
We should be proud that the UK gives so much in international aid. But unless developing countries are provided with a toolkit to unlock the tax billions they are owed, they will never be able to find a sustainable route out of poverty.
Sadly, just over a week after the formal adoption of the sustainable development goals – which will define our efforts to tackle poverty, end hunger and empower women and girls – the UK has backed an unfair global tax deal that shuts out women. If the ambition set out by the world’s heads of state in New York is ever to be achieved, the global tax system needs more than just a sticking plaster.
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Anders Dahlbeck is ActionAid’s tax policy adviser
