ZAMBIA should urgently re-negotiate its bilateral tax treaty with Ireland to halt multinationals flying the money out of this economy, says ActionAid.
The charity, which recently documented alleged tax avoidance practices by Zambia Sugar – findings that have been disputed by the company – said Zambia could do well to learn from countries that have renegotiated or even cancelled bilateral tax treaties in a bid to stop such ‘treaty shopping’ behaviour by multinationals.
Indonesia cancelled its tax treaty with Mauritius in 2004 to stop such ‘treaty shopping’ by Indonesian companies while Mongolia also took the same route on the tax treaty with the Netherlands in December 2012.
Pamela Chisanga, ActionAid Zambia country director, said countries like Indonesia have thus been able to safeguard their tax revenues without significantly deterring foreign direct investment.
On Zambia Sugar, Chisanga said ActionAid maintains that Zambia Sugar’s tax practices mean that Zambians are losing out on vital revenue that would otherwise be applied to meet basic social services.
Chisanga explained that the aim of the recent report on Zambia Sugar was not only to highlight problems with company behaviour or Zambian tax rules, but to also highlight loopholes in the international tax system, including international tax treaties.
“ActionAid maintains that Zambia Sugar’s tax practices mean that Zambians are losing out on vital revenue that would otherwise be applied to meet basic social services,” she said.
“This isn’t simply ActionAid’s interpretation: the evidence is clear to see in Zambia Sugar’s own published accounts, and the accounts of its related companies around the world. Anyone can look at the evidence for themselves.”
Chisanga said Zambia Sugar uses an array of transactions which have reduced or cancelled Zambia’s share of cross-border interest income and profits distributed to its overseas parent company.
“Some have also shrunk the company’s taxable profits in Zambia. From such transactions alone, Zambia has forgone taxes of around US$17.7 million since 2007 – entirely separately from any farming tax break or capital allowances,” she said.
Last Friday in Parliament, Vice-President Guy Scott came to Zambia Sugar Company’s defence, accusing ActionAid of not engaging the government before coming up with their findings.
But Chisanga said for the people of Zambia to judge whether they are losing money or not through Zambia Sugar’s practices, the government ought to make public the agreements it has signed with Zambia Sugar Company regarding further incentives.
“Further, the government must avail the public information on any other commercial agriculture entities that enjoy the current special farming tax rate and to outline clearly what the benefits of such incentives have been to the Zambian public,” said Chisanga. POST ZAMBIA