Global Policy Forum

New report: Corporate tax dodging in Malawi

malawi_tax_report_updated_table_16_juneMalawi, the poorest country in the world, has lost out on US$43 million in revenue over the last six years, from a single company – the Australian mining company Paladin. The money has been lost through a combination of harmful tax incentives from the Malawian government and tax planning using treaty shopping by Paladin. What has happened is not illegal – on the contrary, the combination of tax breaks and tax planning that has resulted in this loss of crucial funds is a result of Malawian and international laws, treaties and agreements. People around the world are outraged that companies get away with paying less tax while the rest of us contribute our fair share. A new report published by ActionAid shows how governments and international tax rules allow this to happen.





June 18, 2015 | ActionAid

An Extractive Affair: How one Australian mining company's tax dealings are costing the world's poorest country millions

Download the full report here.

Malawi, the poorest country in the world, has lost out on US$43 million in revenue over the last six years, from a single company – the Australian mining company Paladin. The money has been lost through a combination of harmful tax incentives from the Malawian government and tax planning using treaty shopping by Paladin.

This money could have paid for

  • 431,000 annual HIV/AIDS treatments; or
  • 17,000 annual nurses salaries; or
  • 8,500 annual doctors’ salaries; or
  • 39,000 annual teachers salaries.

What has happened is not illegal – on the contrary, the combination of tax breaks and tax planning that has resulted in this loss of crucial funds is a result of Malawian and international laws, treaties and agreements. People around the world are outraged that companies get away with paying less tax while the rest of us contribute our fair share. This report shows how governments and international tax rules allow this to happen.

Why is this a problem?

Tax matters. Tax pays for public services such as education, health care and social services, crucial for women, who often end up as the unpaid providers in the absence of decent public services. It also pays for infrastructure to provide clean water, functioning roads and communication systems, all of which are essential for a country to develop and for business to operate.

For most countries, tax revenue is also the most important, sustainable and predictable source of public finance. For the poorest countries especially, tax revenue is key to ensure they have the funds needed to fund their development without being reliant on foreign aid.

Ensuring that enough tax revenue is raised to fund essential services and infrastructure projects should therefore be a key priority for all countries. Yet, developing countries lose billions of US dollars in potential tax revenue each year by giving international companies harmful tax breaks, while some international companies engage in tax planning to pay less tax in developing countries. The global network of tax treaties facilitates this. The compound effects of harmful tax breaks and corporate tax planning is devastating for the finances of developing countries.

This report reveals how Malawi has lost out on US$43 million over six years from a single company, even though Paladin has not broken the law. It looks at how governments and international tax rules allow this to happen and provides recommendations for what can be done about this problem.

 

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