Trust Action Aid to get entirely the wrong end of the stick.
One of Britain’s biggest multinationals, whose brands include Silver Spoon sugar, Twinings Tea and Kingsmill bread, is avoiding paying millions of pounds of tax in an African state blighted by malnutrition, a year-long investigation revealed on Sunday.
The Zambian sugar-producing subsidiary of Associated British Foods, a FTSE100 company, contributed virtually no corporation tax to the state’s exchequer between 2007 and 2012, and none at all for two of those years.
Oh, and why is this?
“Since 2008 Illovo has invested £150m to double the production capacity in Zambia and so create the largest sugar mill in Africa. This mill and related activities provide employment for more than 5,000 people. Capital allowances on this investment have resulted in no corporate tax being payable since the investment was made.
Hmm. There are allowances for investment everywhere in the world, Indeed, any sensible corporation tax system must have them.
But it’s not just that. There’s also the underlying ignorance of what a company does for an economy.
It is estimated that the tax haven transactions of this one British headquartered multinational deprived Zambia of a sum 14 times larger than the UK aid provided to the country to combat hunger and food insecurity.
So fucking what?
The total loss to tax avoidance by multinationals in the developing world is estimated to be around £70bn a year, enough to save the lives of 85,000 children under the age of five in the world’s poorest countries every 12 months, campaigners say.
That’s just not the correct question to be considering.
What we would like to know is what is the overall effect of such foreign investment in such economies. A company is not, after all, to be measured purely by its tax payments as to its effect on the economy.
Imagine, just as an outrageous example, that the company entirely dodged, illegally, ever single penny of taxes due. Is the effect of the company on the economy positive or negative at this point?
Well, it has dumped £150 million into investment in a capital poor economy. That’s of some value. It employs 5,000 people as a result: 5,000 formal jobs in such a country is a pretty big thing. In fact, given that the formal private sector employment is all of 225,000 jobs, 5,000 is actually some 2% of all formal private sector employment in the country.
Around and about the impact of 500,000 jobs on the UK economy: and I think we’d all agree that the impact of a company doing that would be rather larger than whatever tax it was or was not paying on its profits, no?
And to compare the total amount of tax dodging to the total amount of aid: again the wrong question. Assume that all FDI is dodging all taxes. Is it still beneficial? I’ve not got FDI figures for all developing countries but into sub-Saharan Africa it’s of the order of $500 billion a year. Yup, half a trillion.
And do we think that half a trillion flowing in each year is beneficial to the average schmoe in those economies? Actually, yes, yes we do. It’s why the economies are growing in fact. How much tax they do or do not pay is near an irrelevance in terms of the impact on those economies.
And then, of course, we’ve the point about tax incidence. We know very well that there’s some split between shareholders and workers bearing the incidence of corporation tax. We also know what the determinants are. The smaller the economy compared to the global economy the more the workers pay. The more open the economy to capital movement the more the workers pay. Developing economies are by definition small compared to the global economy. And given that we’re talking about foreign capital investment those economies are of course 100% transparent to foreign investment.
Thus, we can say without fear of contradiction, it is the workers, in lower wages, carry most to all of this corporate taxation. No, not because any one “passes it on”. But because the higher the corporate taxation the lower the investment will be. Thus the fewer of those formal jobs in the economy and the lower wages will be.
And that’s the real problem with the Action Aid/TJN/Ritchibollocks story. They’re simply grossly ignorant of the economics of tax. Thus they spout off and their preferred solution leads to the increased immiseration of the workers.
A sensible taxation policy for a capital poor economy is “Please, come and exploit us all you want”. We’ll take the jobs and the economic development please and bugger the tax revenues.