Mining: ‘Tax evasion by multinationals crippling African economies’

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gold mining
gold mining

A Development Economist, Dr Patrick Asuming, Tuesday said profit shifting in the mining sector by multinationals is a major factor contributing to the crippling of many African economies.

That is because although a substantial proportion of the world’s mining production came to Africa, many multinationals had been evading taxes that African countries could use to develop their countries and enhance the lives of their people.

His remarks comes at the back of a finding by the International Monetary Fund (IMF), which says sub-Saharan African countries were losing huge sums of money through tax evasion annually.

The report noted that more than 30 per cent of global production of chromium, cobalt, manganese, platinum, gem diamonds and tantalum were from Africa, with 10 of the top15 most miningintensive economies being in Sub-Saharan Africa.

However, the IMF observed that “the extent of profit shifting in sub-Saharan Africa mining indicates that African countries are losing between $470 million and $730 million per year in corporate income tax on average from tax avoidance.”

That situation, Dr Asuming told the Ghana News Agency, negatively affected revenue generation by governments, which then impeded the funding and implementation of development programmes and projects.
“The implication of the shifting of profit by the multinationals is that money is going into the pockets of foreign multinationals and their owners, instead of countries that produce these mining resources,” he said.

“If you take Ghana for instance, we have been mining for a long time and we are simply not getting enough revenues from our mineral resources and these multinationals who are exploiting it on our behalf are actually cheating us, getting more than they should be getting.”

Dr Asuming said that situation persisted because many African countries lacked the technical expertise of transfer pricing, which made it easier for the multinationals to shift their revenues and profits into countries where they paid lower taxes.

The IMF also found the lack of local capacity in tax administration across governments (including policy formulation and interagency coordination), which meant that corporate taxes were underperforming in most African countries.

The multinationals, therefore, shortchanged the host countries because, “we sign deals that are just one sided and that means we sign deals that are more beneficial to the multinational companies than ourselves,” Dr Asuming said.

Similarly, the IMF report said the international profit shifting by multinationals had reduced the tax base in producing countries, who had also lowered their tax burdens, thereby encouraging unhealthy regional tax competition.

On the way forward, Dr Asuming said it was important for countries that produced mining resources in Africa to have greater control over the mines and put a cap on the number of years that the multinationals could mine before new agreements were signed.

He called for more involvement of local authorities in the mining communities during the signing and implementation of the agreements.

The IMF also recommended a reform to introduce a global minimum effective corporate tax, which would lessen the pressures for corporate tax competition and tax holidays to induce investment.

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