Now they\’re whining about sugar and Zambia

Trust Action Aid to get entirely the wrong end of the stick.

One of Britain\’s biggest multinationals, whose brands include Silver Spoon sugar, Twinings Tea and Kingsmill bread, is avoiding paying millions of pounds of tax in an African state blighted by malnutrition, a year-long investigation revealed on Sunday.

The Zambian sugar-producing subsidiary of Associated British Foods, a FTSE100 company, contributed virtually no corporation tax to the state\’s exchequer between 2007 and 2012, and none at all for two of those years.

Oh, and why is this?

\”Since 2008 Illovo has invested £150m to double the production capacity in Zambia and so create the largest sugar mill in Africa. This mill and related activities provide employment for more than 5,000 people. Capital allowances on this investment have resulted in no corporate tax being payable since the investment was made.

Hmm. There are allowances for investment everywhere in the world, Indeed, any sensible corporation tax system must have them.

But it\’s not just that. There\’s also the underlying ignorance of what a company does for an economy.

It is estimated that the tax haven transactions of this one British headquartered multinational deprived Zambia of a sum 14 times larger than the UK aid provided to the country to combat hunger and food insecurity.

So fucking what?

The total loss to tax avoidance by multinationals in the developing world is estimated to be around £70bn a year, enough to save the lives of 85,000 children under the age of five in the world\’s poorest countries every 12 months, campaigners say.

That\’s just not the correct question to be considering.

What we would like to know is what is the overall effect of such foreign investment in such economies. A company is not, after all, to be measured purely by its tax payments as to its effect on the economy.

Imagine, just as an outrageous example, that the company entirely dodged, illegally, ever single penny of taxes due. Is the effect of the company on the economy positive or negative at this point?

Well, it has dumped £150 million into investment in a capital poor economy. That\’s of some value. It employs 5,000 people as a result: 5,000 formal jobs in such a country is a pretty big thing. In fact, given that the formal private sector employment is all of 225,000 jobs, 5,000 is actually some 2% of all formal private sector employment in the country.

Around and about the impact of 500,000 jobs on the UK economy: and I think we\’d all agree that the impact of a company doing that would be rather larger than whatever tax it was or was not paying on its profits, no?

And to compare the total amount of tax dodging to the total amount of aid: again the wrong question. Assume that all FDI is dodging all taxes. Is it still beneficial? I\’ve not got FDI figures for all developing countries but into sub-Saharan Africa it\’s of the order of $500 billion a year. Yup, half a trillion.

And do we think that half a trillion flowing in each year is beneficial to the average schmoe in those economies? Actually, yes, yes we do. It\’s why the economies are growing in fact. How much tax they do or do not pay is near an irrelevance in terms of the impact on those economies.

And then, of course, we\’ve the point about tax incidence. We know very well that there\’s some split between shareholders and workers bearing the incidence of corporation tax. We also know what the determinants are. The smaller the economy compared to the global economy the more the workers pay. The more open the economy to capital movement the more the workers pay. Developing economies are by definition small compared to the global economy. And given that we\’re talking about foreign capital investment those economies are of course 100% transparent to foreign investment.

Thus, we can say without fear of contradiction, it is the workers, in lower wages, carry most to all of this corporate taxation. No, not because any one \”passes it on\”. But because the higher the corporate taxation the lower the investment will be. Thus the fewer of those formal jobs in the economy and the lower wages will be.

And that\’s the real problem with the Action Aid/TJN/Ritchibollocks story. They\’re simply grossly ignorant of the economics of tax. Thus they spout off and their preferred solution leads to the increased immiseration of the workers.

The cunts.

A sensible taxation policy for a capital poor economy is \”Please, come and exploit us all you want\”. We\’ll take the jobs and the economic development please and bugger the tax revenues.

25 comments on “Now they\’re whining about sugar and Zambia

  1. So when a foreign company “extracts profits” from the UK taking advantage of allowances and following the legislation as determined by parliament, it’s morally wrong. But when a UK company “extracts profits” from a foreign country taking advantage of allowances and following the legislation as determined by parliament, that’s also wrong?

  2. Wow your argument is strong. ‘it has provided 5000 jobs!’ compared to the millions of tax ABF has been avoiding. Wow, 5000 jobs! Thank you and you dared ‘dumping’ £150 million for our own greedy good! Youre a real samaritan.

  3. Maria.
    That’s the point. The millions of tax ABF is erroneously supposed to be ‘avoiding’ is peanuts compared to the benefits to Zambia of investment in its economy. GDP growth in Zambia, last year, was 7.7%. UK was what?

  4. Loving the Observer’s record of failure so far this year. It keeps up and it might not be observing anything this time next year!

    Get it? Cos it’ll be bust. Arf.

  5. That number looks to me about £820,000 per kiddie life saved.

    I hate to get all economical about lost (or potentially lost) lives but surely in dirt-poor places you could save far more lives for that kind of money?

  6. >So fucking what?

    So it was being badmouthed all over the Sky Papers review this morning.

    Someone needs to be taking defamation action methinks.

  7. They’re out by a factor of 1000. Which is a bit embarrassing (actually a factor of 10,000 by some estimates, but even the most pessimistic estimates about wastage in and effectiveness of medical aid programmes come out at under a grand per life saved).

  8. Matt: erm, nobody’s being defamed.

    ABF’s use of a combination of capital allowances for historic investments and offshore companies to employ its expat workers together mean that it pays bugger-all tax in Zambia. Nobody is disputing this.

    The question of whether:
    a) this means that they’re wicked scumbags (“Richie View”);
    b) this means that they’re capitalist heroes (“Timmy View”);
    c) erm, it’s all a bit awkward, and we’re not trying to do this to save tax money, honest (“ABF PR Department View”).

    …is one of opinion, and not subject to defamation law.

  9. Also, what would happen to this money if it had been collected as tax? What is the record of their government on corruption, even over and above the usual waste of the state?

  10. @john b

    >Matt: erm, nobody’s being defamed.

    Not sure on that. A gal (theologiogian Vicky Beeching) and a hairy old bloke with a moustache seemed to me to be restating the “tax avoidance” claim as fact, not opinion, and telling us how awful therefore ABF/British Sugar are. I think one or other was named.

    They didn’t even do the Guardian arms length “x has been accused of y” thing.

  11. ABF’s use of a combination of capital allowances for historic investments and offshore companies to employ its expat workers together mean that it pays bugger-all tax in Zambia.

    I will. I think it highly unlikely that international companies are paying zero tax as a result of employing its expat workers through offshore companies. Here in Nigeria, I am employed through a Swiss company and the local subsidiary pays my Nigerian income tax on my behalf. Three weeks ago, I even got a certificate from the Nigerian tax authorities and I have a Nigerian tax number. When I worked in Russia, it was exactly the same: my employer paid my Russian income tax, and I got a certificate to that effect from the Russian tax authorities.

    If there is any dodging going on in this area, it is likely to be the one – common everywhere – whereby the tax is only paid on the “local” salary given to the expatriate worker, and his “overseas” salary is untaxed. This is probably not legal in the strictest sense, but it seems to be common practice everywhere I’ve worked. I am guessing that the tax authorities realise that receiving tax revenue on a “local” salary – which is either around or slightly above market rates for the position were it done by a local – is better than the nothing they would receive were foreigners in say, Nigeria, to be taxed on their worldwide income. Or investment would dry up, as the cost of employing expatriates doubled.

    So I am extremely skeptical that ABF is not paying any income tax on its expatriate workers; more likely, they’re not paying income tax on their full salary but are paying it at prevailing market rates. You can almost count on it. Companies which try to dodge this altogether run into difficulties very quickly.

  12. When I’ve done some freelance work for a certain company we’ve always had our payment tax free. eg they promise £30k for the contract, £30k is what you get in your pocket.
    Company itself takes care of the appropriate taxes out of the money it receives for the job.

    As for ABF, would not suprise me in the least that the capital investment caused there to be no corporation tax payable for some time.
    Which is better – a little corporation tax or a big investment that by the way employs more people and more local companies and at some point in the future may lead to higher corporation tax take on top?

  13. “One of Britain’s biggest multinationals [...] is avoiding paying millions of pounds of tax”

    This is the part which is perhaps defamatory. Not being eligible for tax is not the same as tax avoidance. To structure your affairs in a certain way in order to minimise tax can be considered avoidance, but not to simple carry out your business in the normal way and not incur any tax.

  14. SE
    Apparently you know nothing about who writes the rules – at the very least you cannot fathom how tax ‘professionals’ are not pushing for legislation that helps themselves.

    Either way, you only wanted to comment to tediously type out your mysteriously lauded ‘title’, which bares nothing about anything about anyone. Except fellow addicts.

  15. “Around and about the impact of 500,000 jobs on the UK economy: and I think we’d all agree that the impact of a company doing that would be rather larger than whatever tax it was or was not paying on its profits, no?”
    Actually Tim there are people who would disagree with you even if the number of jobs were 100 times more.
    I am not one of them by the way.

  16. Companies are bad because htey make profits wot is evil. All the prfotis should go to the workers and not to the fat cats. Right? That would solve all the world’s problems, just doing away with profit.

    The guardian believes it so much they are leading by example.

  17. I see the Under Tax Denouncer for the Duchy of Normandy has turned up to grace us with his whittering.

    I wonder just how much the office boy at a social housing trust knows about the legislative process?

    Anyway, it’s an irrelevance. Capital allowances are simple. If the tax professionals were gaming the system – despite all of the civil servants and elected representatives – then they would want nice, complicated rules. So that people would have to employ tax professionals. But, then, never let thought get in the way of a snide comment, eh Arnald?

  18. Imagine, just as an outrageous example, that the company entirely dodged, illegally, ever single penny of taxes due. Is the effect of the company on the economy positive or negative at this point?

    Anybody with any first hand experience of tax collectors would know that they would far prefer to have no economic activity than have to tolerate economic activity which was untaxed.

  19. The premise that this phantom “unpaid” tax money would be invested locally by the government is a fallacy in any case.

    Zambia is a corrupt county, the cpi 2012 index ranking it around the level of Greece, Moldova, Panama etc…

    The company at least pays its 5000 employees directly.

    In contrast, it is easy to imagine that our foreign aid money is typically back in London before the man who hands over the cheque to them.

  20. *sigh* – foreign aid is not paid as cash to goverments. It was during the Cold War, when “foreign aid” meant “bribing crooked dictators to be on our side”, but DfID projects now are targeted ones with on-the-ground supervision where it isn’t possible for the government to just confiscate the loot.

    The point does apply to local tax revenues, however. Although by sub-Saharan African standards “about as corrupt as Greece and Panama” = “pretty much functional”.

  21. but DfID projects now are targeted ones with on-the-ground supervision where it isn’t possible for the government to just confiscate the loot

    The kleptomaniacs in the developing world have also evolved, though. Now the money really does get used to build a school, only the village chief charges school fees once it opens.

  22. @ john b…

    Don’t be simpleton.

    Clearly there is no physical cheque handed over…

    … the point rather being that since corrupt officials know that they are propped up by aid to the tune of X$, therefore they can get away with “transfers” of Y$ laundered in their own interest.

    *sigh* indeed!

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