Understanding tax abuse
The abuse of taxation can be seen through two lenses, that of the taxpayer (business and individuals) and that of the recipient (government) and how they apply and spend the taxes received.
LENS 1 – BUSINESS & INDIVIDUAL OBLIGATIONS TO PAY TAXES
Generally, the most reported about form of tax abuse, is the immoral behaviour of companies who do not pay their fair share of taxes within the societies they operate. Tax evasion is nothing new, and those who participate therein argue that they have every right to take full advantage of all legal means available to minimise their tax burden. This happens particularly with multinational corporations even if this means setting up offshore companies in ‘tax-haven’ countries with lesser tax burdens through which they ‘transact’ their administration and revenue flows, minimising taxes paid in the country of which much of the services and production emanates.
This is particularly an issue when the multi-national companies operate in developing countries, where questions are raised about their tax avoidance practices which perpetuate poverty and underdevelopment within those nations. Are companies able to claim the moral high-ground, and be champions of sustainable development, when they aggressively lobby for tax breaks or tax protection, and structure their affairs through tax havens?
CORPORATE RESPONSIBILITY TO RESPECT
Corporate Tax Policies should be looked at through the lens of their obligation to Human Rights and Sustainable Development of the nation, wherein they operate.
While job creation is one element of the equations, this is a mutual relationship between employer and employee for labour and expertise rendered. However, it is that taxes paid to Government for the revenues and profits generated that provide the source of national growth and energy to determine the nation’s success.
LENS 2 – THE STATE’S DUTY TO PROTECT AND SERVE THE PEOPLE
Considering that tax abuse by corporations and businesses has a negative impact on human rights and poverty growth. Governments have an obligation to realise and maximise their economic, social and cultural rights, including the obligation to confront tax abuse that threatens their financial strength and tax governance.
The state must also seek to strive for coherence between fiscal, tax, corporate and human rights laws and policies – both at a domestic and international level.
It is this expectation by the people of the state, for the efficient use of tax revenues generated, that Governments are scrutinised on, and today, this is a serious and significant issue in many developing states, where those in authority are often the abusers of state revenues through maladministration and corruption.
Government authoritarian abuse of state revenues occurs in many guises, be these dealings with and through local or international corporations who work with government to inflate expenses and capital expenditure on projects, which gives rise to individual and corporate enrichment programs.
Under such conditions, less of the state’s taxes go toward the public infrastructural development and the public lose out. This situation, when it becomes paramount to those who fulfil leadership positions, and large enough to make a sever impact on tax losses, is often referred to as a situation of ‘State Capture,” which generally leaves the nation significantly poorer than it ought to be. Example of such nations that have largely failed as a result of state capture through corrupt and senseless governance in recent years, is Zimbabwe, Argentina, The Democratic Republic of the Congo, Angola and many others.
South Africa’s growing debt as a nation is currently under a similar and serious situation of State Capture, as its state owned entities buckle under mounting debt whilst borrowing more and spending less on real infrastructural development. Their balance sheets however look good, as they simply revalue their current assets at replacement value and generate negative cash-flows whilst trying to service mounting debt at high interest rates. This is evident at the South African National Roads Agency (SANRAL), the state’s energy provider (Eskom), the National Airline Carrier (South African Airways), Etc.
This is the tax abuse that civil society organisations such as OUTA (an organisation trying to undo Tax abuse), Section 27, Corruption Watch and others are working hard to expose and address in South Africa.