Mobilizing "hidden" African domestic financial resources
Facts suggest that there are potential sources of domestic finance that could, if properly mobilized and efficiently invested, over time reduce significantly African aid dependence by providing alternative development resources, the report claims...
Wednesday, September 26, 2007
Saturday, September 22, 2007
Do you feel poor and fleeced Options
22nd September 2007(Daily Nation)
Christian Aid has a shocking slogan for an institution whose members preach the resurrection and heaven: "We Believe in Life Before Death." The organisation, working with the Tax Justice Network, has produced a report entitled The Shirts off their Backs: How tax policies fleece the poor. Although the report is two years old, it is sufficiently annoying to be relevant today. And they are not stopping there. This week, they set up shop in Nairobi — with help from the Heinrich Boll Foundation — and hosted tax expert Jack Ranguma and Institute of Economic Affairs' Kwame Owino at a public forum to discuss tax justice. It is an eye-opening forum — especially as sitting back quietly, you learn that less than 3 million people in Kenya pay tax, that the Kenya Revenue Authority only captures 24 per cent of the Gross Domestic Product, and that multi-national corporations are the most expert tax dodgers. Under the microscope, the boast that Kenya is financing its budget almost entirely from local revenues falls apart. The Shirts off their Backs says KRA is owed Sh88.5 billion in unpaid taxes — and this money will probably never be paid because the businesses that owe are no longer trading in Kenya or have closed. Tax Justice Network estimates that up to 70 per cent of the wealth holding of high-net individuals is held offshore. Revolutionary stuff, but perhaps you do not want to hear it in an election year.
Christian Aid has a shocking slogan for an institution whose members preach the resurrection and heaven: "We Believe in Life Before Death." The organisation, working with the Tax Justice Network, has produced a report entitled The Shirts off their Backs: How tax policies fleece the poor. Although the report is two years old, it is sufficiently annoying to be relevant today. And they are not stopping there. This week, they set up shop in Nairobi — with help from the Heinrich Boll Foundation — and hosted tax expert Jack Ranguma and Institute of Economic Affairs' Kwame Owino at a public forum to discuss tax justice. It is an eye-opening forum — especially as sitting back quietly, you learn that less than 3 million people in Kenya pay tax, that the Kenya Revenue Authority only captures 24 per cent of the Gross Domestic Product, and that multi-national corporations are the most expert tax dodgers. Under the microscope, the boast that Kenya is financing its budget almost entirely from local revenues falls apart. The Shirts off their Backs says KRA is owed Sh88.5 billion in unpaid taxes — and this money will probably never be paid because the businesses that owe are no longer trading in Kenya or have closed. Tax Justice Network estimates that up to 70 per cent of the wealth holding of high-net individuals is held offshore. Revolutionary stuff, but perhaps you do not want to hear it in an election year.
Thursday, September 13, 2007
South Africa: De Beers Denies It Skipped Duty of R1bn
(Business Day)
Mining giant De Beers yesterday vigorously defended itself in Parliament against suggestions that it evaded paying about R1bn in export duty by allegedly exporting a stockpile of rough diamonds to London in 1992 without the necessary authorisation. The company's directors were called before Parliament's standing committee on public accounts (Scopa) yesterday to answer allegations that it exported 20-million carats of uncut diamonds worth $822m without an exemption certificate just before the 1994 democratic elections. With an export duty of 15%, this would have entailed a liability to the state of about $123m plus interest. In fact, De Beers paid no tax on its exports. The committee has for several years been trying to resolve the issue, but it succeeded in getting De Beers to submit relevant documents - such as correspondence and certificates - only when company representatives were called to appear before it yesterday. Scopa chairman Themba Godi said the committee was "sceptical" as it had taken De Beers such a long time to provide the relevant documents. African National Congress (ANC) MP Vincent Smith, who chaired the meeting, said the committee believed there was something "untoward" in the exports. It would not let go of the matter and would finally present a report to Parliament on it, he said. At issue is whether an "agreement" reached between De Beers and the South African Diamond Board (SADB) in February 1993 was legally binding. Legal opinion obtained by the auditor-general's office suggested the agreement was not legal because it was not signed by either party. The board's resolution noting the agreement was also not signed. However, De Beers commercial director Bruce Cleaver said the company's view was that the 1992 "arrangements" - including a letter by the SADB's then CEO and the company's subsequent written confirmation of it - constituted a legal, valid agreement. This was despite the fact that the annex to a CEO's letter containing the terms and conditions of the agreement was not signed by either party. Lengthy negotiations preceded the deal, which changed the way diamonds were exported to London. A quantity was re-imported for local cutters. The agreement had been reviewed twice before being amended in 1998. Also in dispute was the quantity of diamonds exported in 1992. Cleaver disputed the figures of the minerals and energy department. De Beers figures showed it had diamond stock of 1,6-million carats in that year. Cleaver insisted it was a "misconception" to believe the corporation had exported a huge stockpile which it had built up ahead of the elections. But the board, an executive in the auditor-general's office, Wallie van Heerden, and minerals and energy director-general Sandile Nogxina all said De Beers had exported a stockpile in 1992. Cleaver insisted there were no material spikes in the amount of diamonds exported in 1992 compared with previous and subsequent years. He said De Beers had comprehensive exemption certificates to prove this. Minerals and energy department figures showed a total of R1,7bn worth of diamond exports in 1991, R4,7bn in 1992 and R1,8bn in 1993. De Beers was responsible for the bulk of them. If 20-million carats were exported, this would be double SA's annual production of 8,4-million carats in1992. It would mean De Beers had indeed exported a stockpile. De Beers and Van Heerden agreed to meet to discuss the export figures.
Mining giant De Beers yesterday vigorously defended itself in Parliament against suggestions that it evaded paying about R1bn in export duty by allegedly exporting a stockpile of rough diamonds to London in 1992 without the necessary authorisation. The company's directors were called before Parliament's standing committee on public accounts (Scopa) yesterday to answer allegations that it exported 20-million carats of uncut diamonds worth $822m without an exemption certificate just before the 1994 democratic elections. With an export duty of 15%, this would have entailed a liability to the state of about $123m plus interest. In fact, De Beers paid no tax on its exports. The committee has for several years been trying to resolve the issue, but it succeeded in getting De Beers to submit relevant documents - such as correspondence and certificates - only when company representatives were called to appear before it yesterday. Scopa chairman Themba Godi said the committee was "sceptical" as it had taken De Beers such a long time to provide the relevant documents. African National Congress (ANC) MP Vincent Smith, who chaired the meeting, said the committee believed there was something "untoward" in the exports. It would not let go of the matter and would finally present a report to Parliament on it, he said. At issue is whether an "agreement" reached between De Beers and the South African Diamond Board (SADB) in February 1993 was legally binding. Legal opinion obtained by the auditor-general's office suggested the agreement was not legal because it was not signed by either party. The board's resolution noting the agreement was also not signed. However, De Beers commercial director Bruce Cleaver said the company's view was that the 1992 "arrangements" - including a letter by the SADB's then CEO and the company's subsequent written confirmation of it - constituted a legal, valid agreement. This was despite the fact that the annex to a CEO's letter containing the terms and conditions of the agreement was not signed by either party. Lengthy negotiations preceded the deal, which changed the way diamonds were exported to London. A quantity was re-imported for local cutters. The agreement had been reviewed twice before being amended in 1998. Also in dispute was the quantity of diamonds exported in 1992. Cleaver disputed the figures of the minerals and energy department. De Beers figures showed it had diamond stock of 1,6-million carats in that year. Cleaver insisted it was a "misconception" to believe the corporation had exported a huge stockpile which it had built up ahead of the elections. But the board, an executive in the auditor-general's office, Wallie van Heerden, and minerals and energy director-general Sandile Nogxina all said De Beers had exported a stockpile in 1992. Cleaver insisted there were no material spikes in the amount of diamonds exported in 1992 compared with previous and subsequent years. He said De Beers had comprehensive exemption certificates to prove this. Minerals and energy department figures showed a total of R1,7bn worth of diamond exports in 1991, R4,7bn in 1992 and R1,8bn in 1993. De Beers was responsible for the bulk of them. If 20-million carats were exported, this would be double SA's annual production of 8,4-million carats in1992. It would mean De Beers had indeed exported a stockpile. De Beers and Van Heerden agreed to meet to discuss the export figures.
Tuesday, September 11, 2007
Bank's policy shift strange
(Business Daily Africa)
Does anyone find the International Monetary Fund and World Bank's latest enthusiasm for financing free education only a few years after they insisted on cost sharing intriguing?
As one development scholar recently put it, if a construction engineer presides over the building of a bridge and a few years later that bridge collapses, he can be held liable for his role in the project.
If however a policy wonk prescribes bad policies that lead to loss of lives they simply walk away from it and profess alternative policies.
This is the looking glass through which Kenyans should see the latest enthusiasm that the World Bank has for financing free education in Kenya despite having forced the country's hands into costly cost-sharing programmes in the health and education sectors a few years ago.
Yesterday, the bank was head over heels in support of President Kibaki's hint that the country may offer free secondary education beginning next January, leaving many Kenyans wondering where the catch is.
And the catch is that with the country increasingly financing its national budget from local resources, the two institutions have been losing policy leverage within the official circles.
Could someone at the World Bank please explain what has informed this shift in their policy on education financing?
Does anyone find the International Monetary Fund and World Bank's latest enthusiasm for financing free education only a few years after they insisted on cost sharing intriguing?
As one development scholar recently put it, if a construction engineer presides over the building of a bridge and a few years later that bridge collapses, he can be held liable for his role in the project.
If however a policy wonk prescribes bad policies that lead to loss of lives they simply walk away from it and profess alternative policies.
This is the looking glass through which Kenyans should see the latest enthusiasm that the World Bank has for financing free education in Kenya despite having forced the country's hands into costly cost-sharing programmes in the health and education sectors a few years ago.
Yesterday, the bank was head over heels in support of President Kibaki's hint that the country may offer free secondary education beginning next January, leaving many Kenyans wondering where the catch is.
And the catch is that with the country increasingly financing its national budget from local resources, the two institutions have been losing policy leverage within the official circles.
Could someone at the World Bank please explain what has informed this shift in their policy on education financing?
Kenya: Kenyans Almost Weaned Off Donor Aid
East African Standard (Nairobi) 11 September 2007
Donor funding could drop to one per cent of the Government's Budget next year, a World Bank official has said. This follows efforts to improve tax collection, borrow domestically and reduce reliance on external lenders to pay for State operations. Country Director, Mr Colin Bruce, said donor support has fallen from eight to five per cent of the national Budget since 2002. He added that if the Government sustains the current economic momentum, donor funding should fall further to about one per cent of Treasury's needs by next year. Bruce made the remarks at the launch of the Kenya Joint Assessment Strategy (KJAS) in Nairobi. The KJAS is a five-year blueprint that guides lending to Kenya from 17 nations, including major development partners like Japan, Germany, the United Kingdom and the United States. The World Bank official praised the Government's Vision 2030 economic blueprint, saying it contained key elements that could help Kenya achieve and sustain a higher level of economic growth, social equity and poverty reduction. He added that the State urgently needed to ensure more Kenyans benefited quickly from the ongoing economic recovery programmes. "We believe there are many positive developments taking place in Kenya on the economic front," he said. "We see many challenges too, including in key areas such as economic and social empowerment, infrastructure and internal security." Key reforms Bruce, who was speaking as the head of the Donor Coordinating Group, said the country was likely to achieve some elements of the United Nations' Millennium Development Goals (MDGs) by 2015 despite the challenges. The areas showing promise include enrolling all children in primary school, eliminating the gender gap, and reduction of both the HIV and Aids prevalence rate and malaria infections. He added that the country had to take new measures to meet some of the other goals. "It will be a challenge to reach the goals of reducing by half the proportion of people having no access to safe water, the proportion of malnourished children, and the proportion of people living on one dollar or less a day," he warned. "At current rates of progress, Kenya is also unlikely to reduce maternal mortality by three quarters and child mortality by two third by 2015 as set by the UN." He said the country has attained a stable currency because of the huge financial inflows from Kenyans in the Diaspora. He pointed out that there had been improvements in fiscal discipline and public sector management, the business climate and investment in human development. The country's Gross Domestic product (GDP) currently stands at Sh1.7trillion. Finance minister, Mr Amos Kimunya, who also attended the event, said the growth in real GDP climbed from 0.5 per cent to six per cent and is estimated to keep growing. "By the end of the year, we expect the rate to be around 6.9 to seven per cent," the minister said. He also noted that poverty has eased with the proportion of people living on less than a dollar a day reducing to 46 per cent of the population, down from 56 per cent in 2005. "Indeed, income per capita, which was $400 (about Sh27,000) in 2004, is now slightly over $600 (Sh40,000)," he said. "To achieve Vision 2030, we will require to invest heavily in sectors such as tourism, agriculture, manufacturing, business process outsourcing and in physical and social infrastructure programmes."
Editorial: Bank's policy shift strange
Donor funding could drop to one per cent of the Government's Budget next year, a World Bank official has said. This follows efforts to improve tax collection, borrow domestically and reduce reliance on external lenders to pay for State operations. Country Director, Mr Colin Bruce, said donor support has fallen from eight to five per cent of the national Budget since 2002. He added that if the Government sustains the current economic momentum, donor funding should fall further to about one per cent of Treasury's needs by next year. Bruce made the remarks at the launch of the Kenya Joint Assessment Strategy (KJAS) in Nairobi. The KJAS is a five-year blueprint that guides lending to Kenya from 17 nations, including major development partners like Japan, Germany, the United Kingdom and the United States. The World Bank official praised the Government's Vision 2030 economic blueprint, saying it contained key elements that could help Kenya achieve and sustain a higher level of economic growth, social equity and poverty reduction. He added that the State urgently needed to ensure more Kenyans benefited quickly from the ongoing economic recovery programmes. "We believe there are many positive developments taking place in Kenya on the economic front," he said. "We see many challenges too, including in key areas such as economic and social empowerment, infrastructure and internal security." Key reforms Bruce, who was speaking as the head of the Donor Coordinating Group, said the country was likely to achieve some elements of the United Nations' Millennium Development Goals (MDGs) by 2015 despite the challenges. The areas showing promise include enrolling all children in primary school, eliminating the gender gap, and reduction of both the HIV and Aids prevalence rate and malaria infections. He added that the country had to take new measures to meet some of the other goals. "It will be a challenge to reach the goals of reducing by half the proportion of people having no access to safe water, the proportion of malnourished children, and the proportion of people living on one dollar or less a day," he warned. "At current rates of progress, Kenya is also unlikely to reduce maternal mortality by three quarters and child mortality by two third by 2015 as set by the UN." He said the country has attained a stable currency because of the huge financial inflows from Kenyans in the Diaspora. He pointed out that there had been improvements in fiscal discipline and public sector management, the business climate and investment in human development. The country's Gross Domestic product (GDP) currently stands at Sh1.7trillion. Finance minister, Mr Amos Kimunya, who also attended the event, said the growth in real GDP climbed from 0.5 per cent to six per cent and is estimated to keep growing. "By the end of the year, we expect the rate to be around 6.9 to seven per cent," the minister said. He also noted that poverty has eased with the proportion of people living on less than a dollar a day reducing to 46 per cent of the population, down from 56 per cent in 2005. "Indeed, income per capita, which was $400 (about Sh27,000) in 2004, is now slightly over $600 (Sh40,000)," he said. "To achieve Vision 2030, we will require to invest heavily in sectors such as tourism, agriculture, manufacturing, business process outsourcing and in physical and social infrastructure programmes."
Editorial: Bank's policy shift strange
Tax Evasion in Uganda
11th September 2007 (The Monitor)
ONE the biggest problem URA faces in enforcing tax administration in Uganda is tax evasion. Tax evasion is the failure to pay taxes that are legally due. Evasion of taxes on gains and profits takes place when taxpayers do not declare their gains and profits to tax authorities or do not declare the full amounts. Evasion of import duties, excise duties and VAT taxes occurs when taxpayers do not declare imports or locally manufactured products or do not declare the full amounts, or when they under-value imports and locally manufactured products. I am not aware of any available statistics relating to the tax gap in Uganda, but I believe it could be as high as 50 per cent. The tax gap is the difference between the tax that the URA should collect from all eligible taxpayers in the country, and what they actually collect from the few that are compliant. This tax gap arises mainly as a result of taxpayers failing to file their tax returns, underreporting or understating their income, and in some case as a result of complete failure to pay what is genuinely owed to the URA. The biggest culprits as far as tax evasion is concerned in Uganda are mainly the traders and businesses in the informal sector of the economy. This sector is characterised mainly by cash transactions. One of the ways in which URA can work towards the reduction of the tax gap in Uganda is by bringing the informal sector into the country's tax net. The question is how can URA achieve this? The nature of the activities undertaken in the cash economy makes it difficult to quantify its size and impact on tax revenue. However, there is sufficient evidence to conclude that tax evasion by participants in the cash economy is a significant problem that denies the government billions of shillings in revenue each year. Revenue that could be funding improvements in welfare, health, education, infrastructure and other government programs. In order for URA to address the challenges presented to it by the cash economy and ultimately bridge the tax gap, a new tax administrative approach may be necessary. The cash economy may have to be addressed in a different tax compliance model from the formal business sector. This model could include an approach to compliance improvement, which encourages voluntary compliance by the community through a more cooperative and participative regulatory environment. Mr Kamulegeya is a tax partner at PricewaterhouseCoopers
ONE the biggest problem URA faces in enforcing tax administration in Uganda is tax evasion. Tax evasion is the failure to pay taxes that are legally due. Evasion of taxes on gains and profits takes place when taxpayers do not declare their gains and profits to tax authorities or do not declare the full amounts. Evasion of import duties, excise duties and VAT taxes occurs when taxpayers do not declare imports or locally manufactured products or do not declare the full amounts, or when they under-value imports and locally manufactured products. I am not aware of any available statistics relating to the tax gap in Uganda, but I believe it could be as high as 50 per cent. The tax gap is the difference between the tax that the URA should collect from all eligible taxpayers in the country, and what they actually collect from the few that are compliant. This tax gap arises mainly as a result of taxpayers failing to file their tax returns, underreporting or understating their income, and in some case as a result of complete failure to pay what is genuinely owed to the URA. The biggest culprits as far as tax evasion is concerned in Uganda are mainly the traders and businesses in the informal sector of the economy. This sector is characterised mainly by cash transactions. One of the ways in which URA can work towards the reduction of the tax gap in Uganda is by bringing the informal sector into the country's tax net. The question is how can URA achieve this? The nature of the activities undertaken in the cash economy makes it difficult to quantify its size and impact on tax revenue. However, there is sufficient evidence to conclude that tax evasion by participants in the cash economy is a significant problem that denies the government billions of shillings in revenue each year. Revenue that could be funding improvements in welfare, health, education, infrastructure and other government programs. In order for URA to address the challenges presented to it by the cash economy and ultimately bridge the tax gap, a new tax administrative approach may be necessary. The cash economy may have to be addressed in a different tax compliance model from the formal business sector. This model could include an approach to compliance improvement, which encourages voluntary compliance by the community through a more cooperative and participative regulatory environment. Mr Kamulegeya is a tax partner at PricewaterhouseCoopers
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