Paradise for corporates and ultrarich

COMMENT

The Paradise Papers — detailing offshore investments leaked to the newspaper Süddeutsche Zeitung last year — revealed that more than 500 South African individuals and companies are named in the 13.4-million files, showing how corporates and the rich use loopholes to avoid paying their fair share of tax.

Spar, for example, has set up a company on the Isle of Man, a known tax haven. Although the company points to the weakening rand as their reason for doing so, the convoluted way it was done suggests that Spar and its Irish subsidiary, BWG, “may be seeking to use the opaque disclosure common to Isle of Man companies to hide certain transaction details or to reduce its tax”, according to reports.

Others named in the files include Shanduka, which sent $20-million to a company it had set up in Mauritius. SABMiller and Illovo Sugar are shown to have set up operations in various tax havens.

The bulk of the files are linked to Appleby, an offshore legal services provider. Appleby administered mining company Lonmin’s so-called Bermuda connection through its subsidiary Western Metal Sales. A report by local civil society organisation the Alternative Information Development Centre revealed that Lonmin had, for years, moved hundreds of millions of rands out of South Africa through tax havens, transfer pricing and profit shifting. Lonmin has been criticised for not providing decent living conditions for its employees. If it had, it could potentially have prevented the 2012 mineworkers’ protests, which led to the deaths of 44 people.

While corporates and the rich get away with not paying their fair share, ordinary people are being ravaged because money for much-needed services is reduced. It is the poorest who suffer the most when domestic revenue systems are undermined, because this weakens the state’s capacity to provide basics such as education, healthcare and housing.

An estimated $122-billion was transferred out of South Africa between 2003 and 2012, according to monitoring organisation Global Financial Integrity. Just to put this into perspective, the estimated $29-billion (based on the exchange rate at the time) that left South Africa in 2012 is more than double the conservative estimates of what it would have cost to provide free tertiary education for poor and working-class students. It also by far exceeds what is required to ensure that public schools without basic requirements such as electricity, toilets and fences are fixed.

The revelations from the Paradise Papers came hot on the heels of Finance Minister Malusi Gigaba’s medium-term budget policy statement, which painted a bleak picture of the economy. Rising public debt, a R50-billion budget shortfall, and low economic growth have put 
a serious strain on public finances.

When I was campaigning for tax justice at amandla.mobi, I often heard the argument that an end to tax avoidance would only give politicians a bigger pot from which to loot. But reduced income from tax is a real problem underscored by South Africa’s current budget shortfall.

This is why government’s focus on anti-corruption efforts and the work being done to build pro-poor governance have to be coupled with ensuring that money stays in the country to enable improved service provision.

The government has made some encouraging moves, such as adopting new tax regulations that include country-by-country reporting. This will force corporates to disclose the countries in which they operate, their subsidiaries and their performance, which should expose the use of tax havens. Another victory was the president finally signing the Financial Intelligence Centre Amendment Act into law. This will enable the ongoing monitoring of the sources of wealth and business relationships of the super-rich, their family members and those associated with them, to prevent the misuse of legal entities for activities such as tax avoidance.

Although both these victories are significant they will only have meaning if they are enforced. It is neither a crime to set up operations in tax havens nor is there always criminal wrongdoing when tax loopholes are exploited.

What the Paradise Papers highlight is that the super-rich and corporates pay fancy lawyers and accountants. Which means these loopholes must be closed. South Africa can play its part by enforcing regulations and taking the lead in scrutinising more closely where those who benefit from our resources and opportunities keep their money. For the future of our country, everyone must pay their fair share of tax.

Koketso Moeti has worked in civic activism at the intersection of governance, communication and citizen action. She is a 2017 Aspen New Voices fellow. Follow her on Twitter at @Kmoeti 

Koketso Moeti
Koketso Moeti works from Occupied Azania. Still breathing. Dangerously different. Explorer of possibilities. Rule bender. Liker of things. Lover of people. No sense of humour. Wanna be writer. She/her. Koketso Moeti has over 6034 followers on Twitter.
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