This is a guest post from Overseas Development Institute (ODI) Director Kevin Watkins
Effective action at the G8 summit could see Africa reap a ‘development dividend’ that boosts poverty reduction and sets the region on a course for more self-reliant growth, according to the Director of the UK’s leading development think tank.
The ODI has described Lough Erne as a ‘high stakes’ summit for the world’s poor. ODI Director Kevin Watkins said that more stringent rules on tax evasion could prevent the loss of 3 per cent of GDP – more than many governments spend on education or health. Overall, tax evasion and illicit transfers costs Africa three times more than the region receives in aid.
Mr Watkins added: “This is an opportunity for the G8 to make a difference without spending a penny on increased aid. Cutting tax evasion and illicit transfers would mobilize the finance needed to invest in the infrastructure and essential services needed to break the cycle of poverty. It would also be good for the G8. This is the ultimate win-win scenario.”
He also spoke out against continued tax avoidance and capital flight from developing economies saying: ‘These resources should be financing schools and health clinics in Africa, not sitting in shell company accounts on the British Virgin Islands.’
The ODI has identified five issues to watch out for the in the G8 communique which are:
• Public registries: There will be some encouraging language on the need for national registries on beneficial company ownership in every tax jurisdiction. This is critical because so much illicit activity and tax evasion occurs through shell companies and trusts in offshore centres. But real scrutiny demands that the registries are accessible not just to tax authorities, but to civil society, journalists and the wider public.
• Companies and trusts: This one is a detail that matters. All of the G8 countries have signalled a broad agreement to require reporting on beneficial ownership by companies, but trusts are not always included. That apparently technical detail matters. Much of the US$1.4bn siphoned out of the Democratic Republic of Congo between 2010 and 2012 operated through corporate structures involving trusts.
• Action plans: The G8 countries need to go beyond adopting impressive principles to implementing action plans – and the summit communique should include a timetable for countries to set their own houses in order. Negotiators from the United States wax lyrical about the need for strengthened regulation in off-shore centres, but they are less vocal on one of the world’s most secretive locations for shell company registration – Delaware. Britain’s leadership should extend to the announcement of a plan of action for decisive action at home.
• Links to the development agenda: Improved data, information flows and greater openness are a necessary condition for development – but they will unlock reams of new information. Tax authorities in the poorest countries lack the financial, technical and human capabilities to process information, let alone investigate the transfer pricing and illicit transfer activities of major companies. That is why the G8 action plan needs to extend to support for national and regional capacity building, and a demand that agencies like the World Bank and the IMF get serious about tackling tax evasion.
• Cooperation with the G20: If the world’s richest countries cannot deliver meaningful action on tax and transparency, it is not clear that the G8 has a purpose. By that token, this is a global problem that needs global action, which is why the communique must signal the beginnings of a common agenda with the G20.