Dr Caleb Fundanga
The Taxation, Institutions and Participation (TIP) project is an international research project that seeks to address a number of issues on taxation and capital flows in Zambia, Tanzania and Angola. It is funded by the Norwegian Research Council which awarded a research grant to Chr. Michelsen Institute (CMI) of Bergen, Norway, and its partners; Institute for Finance and Economics in Zambia, the School of Business, Mzumbe University in Dar es Salaam, Tanzania, and the Catholic University of Angola in Luanda.
The research project seeks to investigate the effects of capital flows to tax havens(jurisdictions with very low or no tax at all and strong secrecy regulations) on the domestic revenue systems of the three African countries. Countries with low taxation and no effective exchange of information on tax issues and ownership of companies with other countries and jurisdictions include Switzerland, Luxemburg, British Cayman Islands ,Jersey, Hong Kong, Mauritius and several other countries. They are known to draw huge financial flows from individuals and corporations that seek to shelter themselves from taxation in their home countries or in the countries where they operate.
Up to now, most research on tax havens have concentrated on determining the magnitude of funds that go to tax havens as a contribution to understanding the scale of the problems posed by these low tax, secrecy jurisdictions. The TIP research on the other hand will take a different approach. It will look at (1) the way taxpaying behavior is affected when the tax paying public becomes aware that some individuals and corporations are using tax havens to avoid paying taxes; (2) the manner by which the domestic tax incentive regime is affected by the knowledge that some entities in the country may be avoiding the payment of domestic taxes through the use of tax havens; (3) how large capital flows may affect domestic tax policies; (4) the role of tax advisors and accounting firms in advising corporations to minimize their liabilities in host countries as well as influencing tax policies; and (5) how public knowledge of the use of tax havens by the political elites and large corporations could affect levels of political participation and trust in the state. In this way the project aims to generate new, contextualized evidence on the political economy of domestic revenue mobilisation, institutional development and state legitimacy in countries exposed to large scale capital flows.
The Zambia Launch
The launch of the Zambian component of TIP took place on Wednesday,15thApril2015 at the premises of the Institute for Finance and Economics (IFE) in Woodlands, Lusaka. It was attended by officials from the public and private sectors, as well as academia, civil society and the media, including Bank of Zambia, Zambia Revenue Authority, Zambia Development Agency, Zambia Institute of Chartered Accountants, Economics Association of Zambia, the International Growth Center, University of Lusaka, and Zambia media houses such as Zambia Daily Mail and Muvi TV.
Project leader Prof.Odd-Helge Fjeldstad from CMI, Norway, made a presentation on tax havens and their impact on global financial flows, while Dr. Caleb Fundanga, the Zambian component leader and President of IFE, outlined the envisaged activities of TIP in Zambia during the three years that the project will be under execution. It was explained that the overall objectives of TIP are to improve the understanding of the tax systems in the three African countries and how tax collection could be improved so that African countries can start to fund their own development efforts instead of relying on donor assistance.
Why Taxation Matters
The TIP-project comes at the time when there is global awakening to the reality that unless developing countries can tax economic activities within their borders it will be difficult to find adequate financial resources to fund their economic development. After decades of dependence on development assistance, it is clear that this form of financing has its limits. The current global financial crisis has led to real declines in development assistance. Africa on the other hand is richly endowed with diverse natural resources whose exploitation by international companies over the decades has not benefitted its own people. This is referred to as the paradox of “an abundantly endowed continent with the world’s poorest people”. This paradox has arisen due to Africa’s failure to tax adequately the exploitation of its natural resources. At the same time, Africa is the source of huge capital outflows, either legally or illicitly to tax havens, which adds to this sad state of affairs.
During the TIP launching week (13-17 April), the subject of taxation of Zambia’s copper mines was a news headline issue. The Zambian Cabinet had on Monday 13thApril2015 decided to review the 2015 Budget mining tax regime. This had introduced a new tax system based only on mineral royalty at 8% of gross revenues for underground based mining activities and 20% for open pit based mining operations. This followed from numerous complaints raised by mining companies and their tax advisors regarding the viability of mining in Zambia if the new tax regime was to remain in force. This development confirmed the importance and timeliness of the TIP-project.
Dr. Caleb Fundanga, former Governor, Bank of Zambia, is President of the Institute for Finance and Economics based in Lusaka.[divider]