Why you should care
Because aid money goes further when taxes are harder to dodge.
The United Kingdom will step up efforts to help reduce tax evasion in Africa, as part of a plan to assist developing countries to become less dependent on foreign aid.
The Department for International Development has allocated $62 million to strengthen countries’ tax systems, including a $6.6 million analytics program developed by the Institute for Fiscal Studies think tank to provide analysis and modeling. The U.K.’s programs have included seconding HM Revenue & Customs inspectors to foreign governments. In Ghana, British government agencies supported an advertising campaign, “Our Taxes, Our Future,” to encourage people to pay their taxes. The additional $62 million, which will be spent over a number of years, includes $17 million for International Monetary Fund technical assistance centers to help local governments.
Penny Mordaunt, the U.K.’s development secretary, said the funding would “help countries collect more taxes and leave them less reliant on aid.”
British officials estimate that programs to reduce tax avoidance and evasion in developing countries in effect multiply aid money, delivering as much as $53 in additional government revenue for each $1.33 spent.
They also contend that multinational businesses, including large mining and oil companies, are willing to pay slightly higher taxes in exchange for greater legal certainty and predictability.
However, tax campaigners have criticized the U.K. for facilitating tax evasion and avoidance because of limited transparency requirements, particularly in Britain’s overseas territories.
The Foreign Office recently delayed a requirement for overseas territories to bring in registers of corporations’ true owners, extending the deadline from 2020 to 2023.
Campaigners argue that opaque corporate ownership leads to billions in tax evasion and avoidance. However, overseas territories had threatened legal action if they were forced to introduce the registers by 2020.
Mordaunt has sought to reorient aid spending since taking office in November 2017. She has called for the U.K.’s $18.5 billion development budget to be used to facilitate private sector investment, including opportunities for British businesses.
She also raised the possibility that the U.K. could cut its aid spending below the benchmark of 0.7 percent of gross national income currently enshrined in British law. That level was unsustainable in its current form, she told the Cabinet last month.
With other Western countries failing to meet the 0.7 percent benchmark, the United Nations has said an extra $3 trillion in spending is needed by 2030 to hit its global development goals.
Tax revenue is an average of 18 percent of gross domestic product in African countries, barely half the level in the Organization for Economic Cooperation and Development group of rich countries.
OZY partners with the U.K.'s Financial Times to bring you premium analysis and features. © The Financial Times Limited 2018.