The Tax Justice & Poverty research project is a co-operative effort between three institutions run by the Jesuit Order of the Catholic Church: the Jesuitenmission based in Nuremberg (Germany), the Jesuit Centre for Theological Reflection in Lusaka (Zambia) and the Jesuit Hakimani Centre in Nairobi (Kenya). Work started in 2012 and Dr. Jörg Alt of Jesuitenmission summarises some of the conclusions in this short version of the main report on their attempt to bring together aspects of joint interest arising from work in three very different countries.
Our co-operation has some characteristics which distinguish it from other research on tax justice:
First, qualitative interviews. Due to existing networks arising from Catholic or Jesuit operated schools, our researchers had access also to people involved in tax administration, tax policy development or other administrative positions of interest. Confidential information could be collected which was either anonymized and entered into the research report or, if confidentiality had to be respected, provided important research leads which could then be followed-up via different avenues. To our knowledge, research based on, and guided by such insider views is pretty unique.
Second: our research observed early on that there is already a lot of good material available on tax evasion and/or aggressive tax avoidance of multi-national corporations (MNCs). At the same time, little is known about those earning “super-salaries” or who are private holders of considerable wealth. But it is this group which owns or controls MNCs and wields a lot of social and political power which is needed to regulate MNCs or stop illicit financial flows. This is why our research placed some emphasis on finding out more about private wealth holders.
Third, ethical reflection. Our research further noted that there is little systematic ethical reflection available to answer the question: “What exactly characterises tax justice and what are the criteria to determine a just taxation policy?” This question, obviously, will be answered very differently by followers of a neoliberal mindset or adherents to Christian ethics. Since the roots of our cooperating institutions are within the Catholic Church, work was done on elaborating some sort of framework based upon the principles, norms and values of Catholic Social Teaching, within which those questions can be asked and answered.
As our work progressed, we were struck by how similar problems were in our countries when it comes to the capabilities of tax administrations to implement horizontal and vertical equity, most importantly taxation in accordance with the Principle of the Ability to Pay:
- Tax officials admitted their problems in finding out about the income and asset ownership of corporate and private wealth holders. While there is transparency regarding earnings from dependent labour, e.g. via PAYE mechanisms, comparable transparency does not exist regarding the income of wealthy people which arises from different sources such as labour, capital, rent, dividends of business ownership etc. As a consequence, a (relatively) higher tax burden rests on small and medium businesses and small and medium income holders, even upon poor people who cannot avoid paying VAT.
- Tax officials can find out about income and asset ownership, of course, when spending a lot of time and effort on those issues, e.g. by conducting tax audits. But while African tax administrations never reached adequate staff levels to do such jobs, staff levels in Germany are also far too low, although for different reasons. At the same time it seems, in none of our countries studied will adequate resources be made available to improve the situation.
- Conversation partners among tax officials reported many problems arising from the options available internationally to private and corporate wealth holders to conceal beneficial ownership of assets, e.g. via the offshore system. At the same time, any investigations into financial flows across one’s own national borders are extremely difficult and specialised.
Looking therefore at a more foundational level, our research found ample proof of the influence of private and corporate wealth holders when it comes to blocking adequate tax policies, tax laws and tax administrations able to secure a fair burden sharing for the common good. A major recurring argument is that all of the above weakens a nations’ opportunities within global tax competition, including low tax rates, “flexible” administrations, options for “tax design” and “tax saving” etc., all that being key for attracting capital and investment.
Whether this influence is exercised via professional lobbyism or outright corruption makes a difference in degree, but not in kind. Against those practices, only a drastic increase in transparency would help, followed by international exchange of data and cooperation among tax administrations.
Here, however, we state that developed countries (in our case Germany) continues to defend its advantages over developing countries, as was made obvious at the Addis Ababa FFD3 conference in July 2015 when it was decided to leave international tax cooperation architecture with the OECD rather than with the UN. At the same time, developing countries do not cooperate coherently, but tend to work to secure their own advantages: Kenya participates in OECD BEPS proceedings (while Zambia does not), but, at the same time, promoted the Nairobi International Financial Centre, thus trying to become part of the global offshore system. This is why Germany is ranked 7th, and Kenya is ranked 27th in the Financial Secrecy Index 2018, whereas Zambia is left a victim in this situation. For example, in 2014, more money left Zambia illicitly (USD 2.9 billion) than the government had as its annual budget (USD 2.7 billion).
After our research it is obvious that Kenya and Zambia could do without development aid if they were able to tax justly and fairly that which is produced and owned in their own countries. In order to do that, their tax administrations need to be strengthened, legal options available to tax officials need to be improved and, most importantly, they would need assistance from developed countries, for example, by receiving data regarding non-taxed assets hidden by private and corporate wealth holders. This would curb illicit financial flows leaving African states for developed countries; it would reduce corruption, since there would no longer be places to hide those assets.
It admittedly would diminish the profit developed countries continue to draw through the present international financial and tax architecture. At the same time it would assist African states to gain financial independence, so many years after having obtained political independence. As it was summed up some years ago by the Kenya Revenue Authority’s Commissioner General, Waweru: “Kulipa ushuru ni kulinda uhuru”- or To Pay Your Taxes is To Set Your country Free.
The short version of the report is here.
The project website is here.
For further information: Jörg Alt SJ, Jesuitenmission, Königstraße 64, D-90402 Nürnberg. Tel. (+49)911-2346-189 email@example.com