Africa: Tax Havens - An Emerging Challenge to Africa's Development Financing

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Africa: Tax Havens - An Emerging Challenge to Africa's Development Financing
The term 'tax haven' is a bit of a misnomer because they are not just about tax, but about a whole range of other things too. There is no generally agreed definition of what a tax haven is, but if you drill right down to the core of what these places offer, you end with two words: 'escape,' and 'elsewhere.' Once we understand what this means, it becomes clear why they are such a threat to Africa.

First, escape. Tax havens help wealthy individuals and large corporations escape from criminal laws, from financial regulation, from transparency and disclosure, from inheritance rules, from professional liability, and more. Take your money to a tax haven, and your home rules no longer bind you. In other words, tax havens help wealth elites escape from the rules of civilized society, whether by illegal means or not.

The implications for Africa are obvious.

Second, 'elsewhere.' The secrecy facilities or tax loopholes provided by the 600,000-odd International Business Companies in the British Virgin Islands1 are not for the benefit of local islanders: they are for foreigners, elsewhere. You don't like the rules and laws that apply at home, so you take your money somewhere else. 'Elsewhere' – hence the term 'offshore.'

Offshore lawmakers are always separated from those people who are actually affected by the laws they write - so there is never proper democratic consultation when these laws are written. This is the whole point. These are laws by insiders, for insiders, and the lines of democratic accountability are deliberately cut. So offshore is, almost by definition, the proverbial smoke-filled room, where decisions are taken behind closed doors, with no public accountability. Once again, the implications for Africa should be clear.

Tax havens respond, in their defense, that they are 'efficient' conduits for capital, helping it flow smoothly around the world, channeling much-needed investment into African and other developing countries. Lots of money does indeed flow into Africa through Mauritius and other tax havens.

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