who pays the price hunger the hidden cost of tax injustice may 2013

7/30/2019 Who Pays the Price Hunger the Hidden Cost of Tax Injustice May 2013

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Who paysthe price?hunger: the hidden

cost of tax injustice


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Poverty is an outrage. It robs peopleof dignity, freedom and hope,of power over their own lives.

Christian Aid has a vision anend to poverty and we believe

that vision can become a reality.We urge you to join us.

IDCS is an Indian government-sponsored programme and Indiasprimary social welare scheme to tackle malnutrition and healthproblems in children aged under 6 years o age and their mothers.Christian Aid partner Chetna Vikas helps some o the mostremote and poorest communities in India to access and improvegovernment welare schemes available to themChristian Aid/Sarah Filbey


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hunger: The hidden cosT of Tax injusTice 1

contents

Introduction 2

1. Hunger the true extent 5

2. Why tax dodging means people go hungry 9

3. How tax justice could help combat hunger in India, El Salvador and Ghana 14

4. Secret links: how companies can use tax havens to dodge taxes 28

5. Swissploitation: the hidden cost of trading with Switzerland 32

6. Recommendations: what political leaders need to do in 2013 40

Endnotes 44

Abbreviations 48

Appendix 49


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ChristianAid/NameName

This is a standard picture caption, it is the same width as thecolumns on the main pages

introduction

Ana Maria Ayalas maize crop was completely destroyed by oodsin El Salvador in October 2011. Most o El Salvadors armersrely on what they can grow in their smallholdings. Inequality,an unair tax system and lack o government investment inagriculture mean almost hal the population live in poverty, andone-third o all children aged under fve die rom malnutrition

ChristianAid/SusanBarry


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Hunger still blights the lives o one in eight o the That the world remains a long way o seeing these

global population some 868 million people.1 Progress commitments met is a shameul indictment o modern

towards halving the number o people who are hungry day priorities, or the sad truth is there would be enough

by the year 2015, a goal set by world leaders at the turn ood to sustain every man, woman and child on Earth i

o the century, is disappointing. the interests o the poor were properly upheld. Lacking,

however, is the political will needed to saeguard their

In sub-Saharan Arica, the number o people rights, and sucient resources in developing countries

undernourished has actually increased. In Asia too, the to implement pro-poor policies that would usher in

gures are alarming. India, at the oreront o newly lasting change.

emerging economies, is still home to a quarter o

the worlds hungry, with more than 40 per cent o its In 2013, a mass campaign by more than 120

children malnourished and stunted.2 organisations in the UK has been launched6 to draw

attention to some o the key steps that could and

Hunger has many causes: harvests ruined by food should be taken to help eradicate hunger. Key

and drought both increasingly common due to demands include greater support or small-scale armers

climate change lead to shortages and rising prices who produce about our-ths o ood supplies in

that poor people can ill aord. In addition, a woeul developing countries, as well as measures to address a

scaling back o investment in small-scale arming in the undamental malaise that hampers the eorts o poorer

developing world has hit the ability o communities to governments to help themselves: illicit capital fight and

eed themselves. So, too, has the impact o large-scale tax dodging by multinational corporations (MNCs).

cash-crop plantations, particularly those producing

biouels, which have orced poorer armers o the land. Christian Aid estimates that businesses that benetrom lack o transparency in trade and nancial systems

Confict also plays a role in exacerbating hunger: crops deprive the poorer countries where they trade o some

are burned or seized or eeding armed groups; people US$160bn (102bn) in tax revenues every year ar

are driven rom their homes; and there is a shortage more than such countries receive in aid.7

o labour because o recruitment into armies and

militias. Employment or migrant workers also ceases Tax revenues are predictable and sustainable

as in the recent cases o Libya and Ivory Coast sources o income. They are undamental to allowing

ending the sending home o income to communities developing-country governments to oster human

in neighbouring states where ood shortages may development. But most poorer countries lack the sta,

also be acute. expertise and access to corporate inormation to counter

activities such as transer mispricing, in which some

Massive rich-country investment in commodity unds MNCs manipulate the prots they make and oten hide

is yet another actor contributing to rising prices its them oshore.

impact now so marked that a number o banks no

longer oer such portolios.3 In this report, Christian Aid provides new evidence o

how an end to such practices, coupled with appropriate

Global acceptance that everyone is entitled to development policies, could make major progress

a standard o living adequate or the health and towards eradicating world hunger. We realise that not all

wellbeing o himsel and o his amily, including ood4 the revenues raised would automatically be channelled

was enshrined more than 60 years ago in the United to priority areas such as health and nutrition. There are

Nations Universal Declaration o Human Rights, other priorities such as education and inrastructure.

with subsequent UN declarations and conventions There also remain the challenges o corruption and

underlining the duty o governments to respect, government profigacy; challenges to which Christian

protect and ull that right.5 Aid and our partners are rising. But without doubt, airer

tax systems and greater tax revenues could lead toincreased practical measures to reduce ood insecurity.


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4 Who pays The price?

Chapter 1 looks at the extent o world hunger today. Chapter 5 looks at the role one tax haven, Switzerland

(the most secretive o all, according to a recent survey

Chapter 2 explains how unsustainable tax competition, by the Financial Secrecy Index8), plays in helping MNCs

ineective tax systems and nancial secrecy enable shit prots and dodge taxes. Analysis o trade data

MNCs and wealthy individuals to illicitly shit capital to shows that developing countries could have lost as

jurisdictions with low or zero tax rates, thus dodging much as US$578bn (368bn) between 2007 and 2010

taxes and maximising prots. It also looks at the rom MNCs trading with or via Switzerland. This is ar

practical measures that could be unded with the more than the annual estimated US$50.2bn (32bn)

money lost. cited in a 2012 UN Food and Agriculture Organization

report that would be needed to create a world ree rom

Chapter 3 looks at three middle-income countries hunger by 2025.9

India, El Salvador and Ghana showing how unair tax

systems and low tax revenues aect the lives o the Finally, chapter 6 contains policy recommendations

poor. about how to tackle nancial secrecy, illicit capital fight,

and tax avoidance and evasion. The UK government, as

Based on the analysis o a sample number o MNCs chair o the G8 in 2013, and the government o Ireland,

operating in our three country examples, chapter 4 as President o the European Union or the rst six

shows that those with connections to tax havens are months o the year, have a golden opportunity to take

paying 28.9 per cent less in taxes as a percentage o determined action to make tax justice a major weapon

prots than MNCs with no tax haven links. against poverty and hunger. Its an opportunity they

must not shirk.


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Dorcas in the yard o her parents home in Fooshegu, northernGhana. Thanks to the support o Christian Aid partner NorthernPresbytery Agricultural Services, her ather, Samson Napatia, isable to give her and her fve sisters three nutritious meals a day,even during the hunger season when ood is traditionally scarce.Samson cannot speak highly enough o Northern PresbyteryAgricultural Services feld ofcers. Since they came to hiscommunity with practical ideas to help armers grow more, hismaize harvest alone is 10 times larger enough to see him tothe next harvest. Until the government has the unds to employmore o its own feld ofcers, it will all to NGOs like NorthernPresbytery Agricultural Services to fll in the gaps

1. hunger the true extent


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Table 1: Number o hungry people worldwide (millions)

1990/1992 1998/2001 2004/2006 2007/2009 2010/2012

1,000 919 898 867 868

Source: FAO, The State o Food and Agriculture, 2012.

Table 2: Geographic distribution o hunger

Region Number o

millions hungry

Developed regions 16

Arica 239

Asia 563

Latin America and 49the Caribbean

Oceania 1

World 868


tePowell

oinet

Zenabu Razak, caterer at

Aid/Ant

Gbanyamni primary schoolin Ghana, prepares the lunch

tianthat will be provided ree tois

Chrall o the schools pupils as

part o Ghanas ree schooleeding programme

Progress has been made in the fght against hunger Although there has been some progress in recent years

since the start o the millennium, when 919 million in reducing the number o children globally aected

people went to bed hungry every night. Today, the gure by hunger, malnutrition and related causes still lead to

stands at 868 million, a reduction rom 15 per cent o the the deaths o 2.3 million children every year.14 Indeed,

worlds population to 12.5 per cent.11 childhood malnutrition is the underlying reason or an

estimated 35 per cent o all deaths o children under

To that gure, however, must be added another the age o ve in the developing world, with those that

1 billion people who continue to suer a lack o survive oten suering long-term irreversible damage.15

essential micronutrients.12 Known as hidden hunger, Meanwhile, one in every six children aged under ve in

micronutrient deciencies increase the rate o disease, developing countries is underweight, while as many as

lower lie expectancy and impair cognitive development, one in our suers stunting.16 Recent research suggests

learning ability and productivity. The result is a tragic that children under ve who are malnourished are likely

loss o human potential with ar-reaching implications. to see their uture earnings reduced by almost a quarter.17

In India, or example, iron and iodine deciencies that

cause stunting are estimated to result in productivity Women, who make up a little over hal the worlds

loss equivalent to 2.95 per cent o GDP annually.13 population, suer disproportionately, accounting or

some 60 per cent o the worlds hungry as a result o

persistent, deep gender inequalities.18

t t lt m blm t t lt mmt btw l

m. it ml t lt ltl t ttm mll m, t m vtm , t vt

Olivier de Schutter, UN Special Rapporteur on the Right to Food10


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W m bm mt w That same year, at the World Summit on Food Security,In recent years, world leaders have been party to a held in Rome by the UNs Food and Agriculture

series o undertakings and pledges to tackle hunger Organization (FAO), world leaders unanimously

head-on. In 2000, at the Millennium Summit, they pledged renewed commitment to eradicating hunger

agreed to reduce poverty at historically unprecedented sustainably and at the earliest date. They set as

rates through collaborative global action. The rst o the their target reducing respectively the proportion and

eight millennium development goals (MDGs) aimed to the number o people who suer rom hunger and

halve the percentage o people aected by hunger by malnutrition by hal by 2015.20

the year 2015.

The then-FAO director-general, Jacques Diou, stressed

the need to produce ood where the poor and hungry live,

and to boost agricultural investment in those regions.21

Yet, despite all promises made, a look at the percentage

o people suering rom hunger and the actual number

o people undernourished shows that progress has

been disappointing. In southern Asia, where 327 million

children, women and men were undernourished in 1990,

In 2008, the year ood-price spikes triggered rioting the decrease ater more than two decades has been

in more than 30 countries, the UN Secretary-General less than 5 per cent. Worse still, in Arica, the number

established a High Level Task Force on the Global o hungry people has increased by 36 per cent over the

Food Security Crisis, which included heads rom UN same period, rom 175 to 239 million people.specialised agencies, and the World Bank and IMF.

The truth is we are a long way rom halving the number

A G8 Summit in Aquila (Italy) in 2009 then agreed a Food o people suering rom hunger.

Security Initiative that committed US$20bn (12.7bn)

over three years or sustainable agriculture development

and saety nets or vulnerable populations.19 However,

much o the money was later not orthcoming.

W v t m; w vt t t lmt

m t t t ltm. W l t wll

US President John F Kennedy, 1963

Table 3: Progress made towards halving the number o people who suer rom hunger, expressed as

prevalence o hunger

Region Baseline

1990/1992

1998/2001

2004/2006

2007/2009

2010/2012

MDG

target2015

Level o

achievement*

World 18.6% 15% 13.8% 12.9% 12.5% 9.3% 65.6%

Arica 27.3% 25.3% 23.1% 22.6% 22.9% 13.65% 32.2%

Asia 23.7% 17.7% 16.3% 14.8% 13.9% 11.85% 82.7%

Latin

America

and the

Caribbean

14.6% 11.6% 9.7% 8.7% 8.3% 7.15% 88.1%

Oceania 13.6% 15.5% 13.7% 11.9% 12.1% 6.8% 23.1%


*Level o achievement is our own calculation.22


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Table 4: Progress made towards halving the number o people (in millions) who suer rom hunger,

expressed in absolute terms

Region 1990/1992 1998/2001 2004/2006 2007/2009 2010/2012 WFS

Target

2015

Achievement*

World 1,000 919 898 867 868 500 26.4%

Arica 175 205 210 220 239 87.5 No reduction

Asia 739 634 620 581 563 369.5 47.6%

Latin

America

and the

Caribbean

65 60 54 50 49 32.5 49.2%

Oceania 1 1 1 1 1 0.5 No reduction


*Level o achievement is our own calculation.


11/52ChristianAid/SimonWilliams

Women prepare ood or the Jan Satyagraha marchers.Christian Aid partner Ekta Parishad organised the march in 2012.More than 50,000 poor and landless armers marched peaceullyto demand rights to the land they have worked on or years.Eight days into the month-long march, the Indian governmentagreed to their main demands

2. Why tax dodgingmeans people go

hungry


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W t t tl t long way rom the rate in the developed world they couldmbt achieve all the MDGs including halving the number oThe ace o global poverty and thereore hunger has people living in hunger.30

changed in recent years. Whereas two decades ago

most o the worlds poor people lived in low-income23 There are, o course, cogent reasons why developing

countries, today two-thirds are to be ound in countries countries are unable to raise the requisite amount. Large

that the World Bank classies as middle-income numbers o their citizens, especially smallholder armers

countries, such as India and China.24 in rural areas, live in poverty and do not enjoy taxable

incomes. In addition, such countries have large untaxed

With that change, in the UK at least, a growing chorus inormal sectors.

o dissent has questioned whether countries that are

relatively rich, in comparison to least-developed nations, Revenues are also lost when developing countries oer

should still receive aid, particularly at a time o cuts in major tax incentives to oreign companies in return or

public services at home.25 investment. The ear is that without such tax breaks,

the companies may go elsewhere. In recent years,

The argument ignores such salient acts as the minimal development agencies, including Christian Aid, have

dierence in per capita income between low-income sought to draw attention to the huge costs associated

countries and the economically disadvantaged in middle- with tax incentives. In act, evidence seems to suggest

income countries. It ignores too the sheer scale o need that costs are oten ound to be higher than the benets

in many o todays emerging economies. In Brazil, or derived rom the investment they seek to attract.

instance, a country that has a GDP almost as large as that

o the UK, some 16 million people the same number as Finally, one o the most important actors workinglive in the Netherlands go hungry every day.26 against developing countries is tax avoidance and

evasion by MNCs and wealthy individuals. In 2008,

Christian Aid would like to see a world ree rom hunger Christian Aid estimated that tax evasion associated to

and poverty, where aid is no longer necessary. For this trade mispricing by MNCs costs developing countries

to become a reality, the causes o poverty need to be around US$160bn (105.3bn) a year, ar more than they

addressed and developing countries need to nd the receive in aid.31

resources to cope on their own.

Dealing with the corporation tax gap in developing

As a sustainable and predictable source o nance, countries could, according to research by the IF

tax revenues have a key role to play in ostering campaign, raise enough public revenue to save the lives

economic sel-suciency or both the developed and o 230 children under ve every day.32

the developing world. Providing a sound economic

ooting or development, air and ecient tax systems hw m bl t talso have an impact on the body politic itsel, leading to Foreign direct investment, the investment in

greater transparency and accountability on the part o commercial activities in one country by a business in

governments as taxpayers demand evidence o how another, rose by 2,000 per cent between 1982 and 2011

their money is being spent.27 to US$1.5tn (955bn).33

The UK government says: Governance appears to be To attract the vast amounts o oreign capital now

better where governments have to earn their incomes available, many countries have resorted to potentially

by taxing a wide range o citizens and economic damaging tax competition, such as the reduction o

activities... Well-managed taxation systems can play a corporate income tax rates, the granting o generous tax

major role in state building.28 incentives to oreign corporations, and even, in some

cases, lax legal enorcement and the promotion o

Today, however, low-income countries collect an average secrecy provisions, eg banking secrecy laws.o only 13 per cent o their GDP in tax revenues, compared

to around 35 per cent in countries in the Organisation or Some countries those generally known as tax havens

Economic Co-operation and Development (OECD).29 The or secrecy jurisdictions have made their capacity to

UN estimates that i the worlds least-developed countries attract oreign capital their major economic activity.

raised at least 20 per cent o their GDP rom taxes still a The prime attractions they oer are a low or zero tax

W tm t [g8] t v bt t v t v. T wll l

t t l vl t llt t tt t tm

UK Chancellor o the Exchequer George Osborne, February 2013


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rate and nancial secrecy, heedless o the damage that Financial secrecy enables other orms o illicit capital

might cause elsewhere. fight too, including corruption. Raymond Baker, a senior

ellow at the US Center or International Policy and an

A lack o inter-government cooperation at regional and internationally respected authority on money laundering,

global levels and the eective infuence o powerul has estimated that some 3 per cent o money moved

beneciaries rom the tax competition phenomenon illicitly around the world consists o the proceeds o

have resulted in numerous legal loopholes as well bribery and thet by government ocials.40

as a lack o transparency, which enables MNCs and

wealthy individuals to shit capital and prots in secret Research published last year estimated that US$854bn

to minimise their tax liability. (543bn) illicitly escaped rom sub-Saharan Arica

between 1970 and 2008. This gure is double the

One method used by some MNCs is transer ocial development aid fows over the same period,

mispricing, where dierent subsidiaries o the same and our times the size o Aricas debt in 2008,41 thus

corporation sell goods and services to each other at making sub-Saharan Arica the region with the highest

manipulated prices. False invoicing involves similar prevalence o undernourishment a net creditor to the

transactions taking place between unrelated companies. rest o the world.

With 60 per cent o world trade, according to the OECD,34 Its clear that ar-reaching global action is needed to prise

now taking place between companies that are part o the open the nancial secrecy o tax havens that not only

same MNC, such transactions play an important part in acilitates tax dodging, but also hides the proceeds o

articially distributing prots and tax liabilities.35 corruption, drug tracking and other crimes.

However, transer mispricing is not the only mechanism Governments have their role to play (as outlined in

used by corporations to dodge taxes. As ActionAids chapter 6), but MNCs do too. The UN Guiding Principles

recent report on Associated British Foods shows, on Business and Human Rights state that corporations

corporations establish complex corporate structures to have the duty to respect human rights, including

exploit tax legal loopholes and benet rom the existing the right to be ree rom hunger.42 However, when

network o tax agreements between countries (double corporations engage in abusive tax avoidance or evasion,

tax treaties).36 they create an adverse impact on the human rights o

others. Such activities, even when legal, are increasingly

These complex corporate structures oten involve the being seen as immoral.

establishment o subsidiaries in tax havens. The sheer

scale o business now conducted through tax havens is hw t v immense. More than hal o world trade today ollows Tax revenues should account or at least 20 per cent

such a route: hal o all banking assets are held oshore o a countrys GDP or sustainable development to

and one-third o oreign direct investment is channelled become a reality.43 Indeed, evidence suggests that

through such accounts.37 Arican countries with higher tax collections generally

have lower levels o undernourishment: countries

This secret world allows vast amounts o money to collecting more than 20 per cent o their GDP in tax had

be hidden rom public scrutiny, acilitating tax dodging an average level o undernourishment o 15 per cent

and massively reducing revenues that could promote during 2005-08, while those collecting less than 10 per

development. The OECD has estimated that the money cent had an average rate o undernourishment o 32

lost by developing countries to tax havens is nearly three per cent.44

times the amount o aid they receive.38

Increasing tax revenues is necessary to end hunger

More recent research by the Tax Justice Network and poverty. However, what matters most is how

estimates that rich individuals alone could be hiding as governments make an eective use o the nancialmuch as US$21tn (13.4tn) in tax havens. I the capital resources available. In this sense, the eective

gains o 3 per cent o US$21tn (13.4tn) were taxed at investment o tax revenues to increase the productivity

30 per cent, it would generate revenues o US$189bn o smallholders agriculture and develop appropriate

(120bn) a year.39 pro-poor markets becomes essential.45


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Today, more than hal the population o the developing As well as enhancing ood security and maximising

world (3.1 billion people) live in rural areas and, o these, the productivity o limited arable land, the right kind

2.5 billion derive their livelihood rom agriculture. In o support or smallholders can contribute to poverty

many developing countries, agriculture remains the main reduction through multiple benets, including providing

driver o economic growth and is oten the sector that is employment,48 building resilience to sudden changes

most resilient to global economic crises.46 in the weather or other actors aecting ood supply,

empowering women and vulnerable or excluded

At least hal o the ood consumed in the world communities, and enhancing the natural resource base

is produced by smallholders, who produce ood on which the uture o ood production depends, or

or subsistence and/or or sale to local, as well as instance by promoting soil-conservation practices.49

sometimes regional and international, markets. These

arms are the backbone o rural economies. The World Bank estimates that agriculture growth

is three times more eective in reducing extreme

However, many ood-producing households are trapped poverty than growth in other sectors, particularly in rural

in poverty, oten not producing enough or their own areas.50 A thriving agricultural sector is a strong basis

consumption or making only meagre prots rom their or economic diversication, creating new opportunities

sales, so they are unable to build up assets or invest that can contribute to much-needed economic

in practices that could help increase and diversiy their dierentiation and employment.

production, cope better with risks and uncertainties, and

seize market opportunities. Tackling tax dodging and nancial secrecy could provide

the US$50.2bn required every year to tackle hunger.

Food insecurity47 persists because sucient ood is notproduced or available to poor people in those places

where it is most needed, and because poor people

cannot aord to buy enough ood to meet their needs.

Low levels o production are the result o lack o

government investment in smallholder agriculture

or many decades. Small-scale armers are oten

marginalised by policy-makers, and lack the ability to

infuence policies and programmes to their benet,

particularly over the provision o agricultural research

and technology development, rural credit, transport

inrastructure, and access to markets to buy and

sell goods.

Other important causes o hunger are natural hazards

such as droughts and foods, slow-onset climate change

and environmental degradation, lack o income security

and other saety nets, as well as dispossession o some

o the worlds most vulnerable people rom land.

ahWilson

Even i smallholders produce enough to sell, ood

markets are characterised by power inequalities and Aid/Sar

policy and inrastructure ailures, which keep small-scale istian

ood producers poor, limiting their purchasing power Chr

and preventing ood rom being distributed to whereit is needed. In many developing countries, local ood In El Salvador, Rosa Cruz worries about her son and

husband. With no other jobs available, they work in thesugar cane felds, where they are exposed to toxic chemicals.Her husband is already suering rom chronic kidney ailure,which could be caused by the pesticides used in the felds

markets are ragmented, and in the case o staple oods,

the usual mechanics o demand and supply do not work

at all, especially in sub-Saharan Arica.


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What developing-country governments could do to combat hunger

Tackling tax dodging and illicit capital fight could crops they grow, removing barriers to innovation

provide much needed revenue to help combat ood and adaptation (or example, lack o access to

insecurity. Governments in developing countries improved seed varieties), and integrating disaster

should use tax revenue eectively, particularly in risk reduction strategies and climate services with

support o measures to improve ood security. This agricultural development work

could include: implementing eective programmes o social

supporting ood production or local and national protection or the most vulnerable groups

domestic consumption and regional markets

through investment in agricultural research promoting education and health systems,

involving local armers (including smallholders), including improving nutritional education,

and the development o technologies appropriate healthcare and amily planning, and access to

to their needs, including irrigation and storage water and sanitation.

capacity

In addition, actions should be taken to: ensuring equitable access, especially o women,

to credit and land, with a ocus on long-term adopt policies to prevent and manage excessively

sustainable development volatile ood price fuctuations

promoting sustainable ood production, empower small-scale producers and their

which is commercially viable and protable, organisations in decision-making about public

environmentally sound, inclusive and equitable spending on agriculture and rural development

promoting pro-poor markets, or example through challenge unsustainable production and

the development o thriving and integrated local consumption in industrialised countries, and

ood industries in which ood producers can add highlight the links between ood and energy,

value to their products and improve their access including the problems o biouels expansion

to markets promote stronger and more equitable global

improving inrastructures, such as road systems, governance, particularly o international trade,

to support ood transportation agricultural investment, and nancial and

commodities markets. building the populations resilience to ood

shortages by helping armers to diversiy the


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3. hoW tax justice coulhelp combat hunger

in india, el salvadorand ghana

d

The Jan Satyagraha 2012 campaign or land rights or some o thepoorest people belonged to, and was rooted in the experiences o,the Indian people. Yet Christian Aid partner and march organiserEkta Parishad stressed the importance o global solidarity to thiscampaign, striving or justice on a very global land issue. Withsecure access to land and ree rom the ear o being orced otheir land by big business, armers are able to invest their timeand resources in caring or the land and ultimately grow moreood or their communities

ChristianAid/SimonWilliams


17/52


Table 7: Child undernourishment in India

Percentage o children who are stunted 47.9%

Percentage o children who are

underweight43.5%

Mortality (per 1,000 births) 66

Source: UNDP, Human Development Report 2011.

Table 5: Poverty and inequality in India

Population 1,245 million

Gross national income (GNI) per capita US$3,296 (2,096)

Position in Human Development Index (2011) 134

Income GINI coecient51 36.8

Average income: 20% richest over 20% poorest ratio 5.6

Population living on less than US$1.25 (0.80) a day 41.6%

Source: United Nations Development Programme (UNDP), Human Development Report 2011.

Table 6: The goal to eradicate hunger in India

1990-1992 2004-2006 2010-2012 2015 target

(reduce by 50%)

Level o achievement

in 2012*

Number o people

undernourished

(millions)

240 238 217 120 19.1%

Proportion o peopleundernourished

26.9% 20.9% 17.5% 13.45% 69.9%

Source: FAO, The State o Food Insecurity in the World, 2012.

*Level o achievement is our own calculation.

Table 8: India in the Global Hunger Index 201252

1990 1996 2001 2012

Global Hunger

Index

30.3 22.6 24.2 22.9

Source: International Food Policy Research Institute

(IFPRI), Global Hunger Index 2012.

i

Indias gross national income (GNI) per capita doubled

between 1995 and 2010.53Yet, one in every our hungry the goal o halving hunger by 2043.55 As the Nobel Prize

people in the world lives in the sub-continent. As the winner Amartya Sen put it: there is probably no other

tables above clearly indicate, India will not reach the example in the history o the world development o an

target to halve the incidence o hunger by 2015. economy growing so ast or so long with such limited

results in terms o broad-based social progress.56

While the proportion o undernourished people has

allen by 35 per cent since 1990, the actual number o India, with a score o 22.9, ranks 66 out o 79 countries

people still suering rom hunger only decreased by in the Global Hunger Index (GHI), worse than Niger or

9.5 per cent, rom 240 million in 1990 to 217 million in Sudan. But the aggregated national data hides important

2012. Almost hal o the children under the age o ve in internal disparities.India suer rom stunting, while more than 40 per cent

o children and 30 per cent o women are underweight. According to the India State Hunger Index57 analysed

In addition, it is estimated that as many as 80 per cent by the International Food Policy Research Institute in

o children and 56 per cent o women are anaemic.54 2008, the scores ranged rom 13.6 or Punjab to 30.9

At the current pace o events, India would only achieve


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or Madhya Pradesh, the worst-perorming state. Punjab

would actually rank 34th when compared to the GHI

2008 country rankings (between Nicaragua and Ghana),

while Madhya Pradesh would be ranked 82nd (between

Chad and Ethiopia).

The same analysis showed that 12 o Indias 17 states

all into the alarming category, while the situation in

one, Madhya Pradesh, was extremely alarming. For the

majority o states, high child underweight ratios were the

key reasons or the high GHI score.58

Despite the signicant and sustained growth rates

experienced in India in the past two decades, 3,000

people still die o starvation every year.59 But it is not as

though the country ailed to produce enough ood or

everyone. In act, India sold around 10 million tons o

ood grain in open market in 2012.

Handling o ood stocks remains a key challenge in

India.60 Some 80,400 tons o ood grain rotted in 2012

due to lack o storage acilities.61The government

claims that its ability to ensure ood or all is limited by

budgetary constraints.

T ntl f st Bll t bl tbt tmIn October 2010, concerned with the alarming state o

ood insecurity in the country, the National Advisory

Council (NAC) drated a National Food Security Bill,

proposing legal ood entitlements or 75 per cent o

the population.

In January 2011, an expert committee set up by the

then prime minister examined the Bill and made several

recommendations, including reducing the percentage o

the population entitled to the benets o the programme

rom 75 to 63 per cent.

Based on these recommendations, a drat Bill was

circulated in September 2011 by the Ministry o Food,

Consumer Aairs and Public Distribution or public

eedback. The Bill nally proposes ood grain entitlement

or up to 75 per cent o the rural population and 50 percent o the urban population. O these, at least 46 per

cent o the rural population and 28 per cent o the urban

population are declared as priority households and are

entitled to 7kg o subsidised ood per person per month

(non-priority households are entitled to 3kg per person

per month). Hence, the Bill ollows a targeted public

distribution approach.

However, many in India, including Christian Aid partner the

Centre or Budget and Governance Accountability (CBGA),

claim that all citizens in India should be entitled to the ood

distribution system. For households to be entitled to the

ood distribution system, they need to be identied as

poor by the government and receive the corresponding

Below Poverty Line card. In the past, methods used to

identiy potential recipients were proved to be based on

aulty estimates o who was living below the poverty line.

As a result, the programme ailed to reach many in need.

Three dierent national surveys62 have shown that as

many as hal o the current poorest households in India do

not have a Below Poverty Line card.63

One o the main arguments or the government to opt

or a targeted system was the need to control spending.

According to CBGA, ensuring ood or all vulnerablehouseholds would cost an additional US$20.6bn

(13.1bn) per year. This gure could be reduced i

transport systems and storage capacity were improved.

ChristianAid/SimonWilliams

Ekta Parishad activist Sita Ram holds a jar containingdonations oten given by people with precious little tospare to support the Jan Satyagraha marchers


19/52


Niyancis experience o the public distribution system (PDS)

Chr Shortages used to be a major issue. We wereistianAid/Sar

really struggling; villages were isolated we were

only having one meal a day and we didnt have anyah means to improve our ood supply, Niyanci recalls.Filbey

Most o the households were registered as BPL

Below Poverty Line which meant that they

were entitled to PDS grain, but collecting it entailed

an 8km walk to the nearest grain dealership.

We had to carry it ar on our heads and cross the river

during the rainy season. It would take us an entire

day to collect the rice, and when we reached the

dealership, we were oten told the distribution date

had changed, explains Niyanci.

We werent inormed about when the rations had

arrived. Also they would update the passbook [to

show wed collected], but say that the rations hadntcome. Months would pass at a time in that way,

she says, recounting a common tale o corrupt

administration o such schemes, which are not

properly monitored.

The consequences to amilies that depended on

these rations were signicant. When we were not

getting rations on time we would have to go or casual

labour, wed migrate and be underpaid, she explains.

The situation improved when the womens group,

ater organising protests, was oered the chance to

Niyanci Miranda lives in a village called Parasdah, take over the distribution.

in the state o Jharkhand, where the prevalence o

hunger is the second-highest in the country. We realised the importance o organising these

women and giving them a platorm rom which to

She is a member o a local womens group that claim their rights and entitlements, explains Rani

was established with the support o Christian Aid Kumari o Chetna Vikas.

partner Chetna Vikas. The group has been running

the governments public distribution system, which Niyanci concludes: Although the government is doing

provides subsidised oods in an area covering quite a lot, it is not enough. We were lucky, but most

more than 1,000 households. However, while ood o the programme does not reach all people in need

security has signicantly improved in Parasdah and in India. Many go still hungry.

neighbouring villages, it was not always like this.


20/52


hw i t v mGiven Indias sustained period o growth between 1990

and 2010, per capita income grew at almost 5 per cent a

year in real terms64 the Indian governments claims that

budgetary constraints hamper its ability to improve ood

security or the 212 million people that are undernourished

stretch credulity. Low tax revenues, however, are an issue.

With a tax-to-GDP ratio o 16.8 per cent, India obtains

a relative very low level o income compared to other

emerging economies. Brazil, or instance, has a 34.2 per

cent ratio, while South Aricas tax revenues represent

31.2 per cent o its GDP.65

Another key characteristic o the Indian tax system is the

relatively low part played by direct taxes (personal and

corporate income taxes). In 2009-10, they represented

37 per cent o total tax revenues, one o the lowest o

all G20 countries, and well below South Arica at 57.5 per

cent and Russia at 41.3 per cent. 66

One reason or the short all is the low tax rate enjoyed

by high earners. The current 30 per cent rate is lower

than the average maximum personal income tax rate in

sub-Saharan Arica, which is 35.07 per cent.67

As or corporate income tax, research shows that there

is a signicant dierence between the statutory tax rate

(33 per cent) and the rate that is eectively being paid

(24 per cent).68 Despite this, a new Direct Tax Code Bill

proposes to lower corporate taxes even urther.

Illicit capital fight and tax dodging in the orm o transer

mispricing by national corporations endeavouring to take

tax advantages (such as a tax holiday) in the special

economic zones69 that have been created, as well as by

international corporations shiting prots to lower tax

jurisdictions, are a major problem.

With around 3,500 disputes over alleged mispricing,

India has the most transer-mispricing cases in the world

ater Japan and Canada.70 According to the countrys

Directorate o Transer Pricing, the amounts involved

in mispricing ran at US$8.1bn (5.2bn) in 2010-11 and

US$12.6bn (8bn) in 2011-12.71 Corporation tax o 33

per cent on these amounts would have provided an

additional US$6.9bn (4.4bn).

That wealthy individuals and MNCs in India have

signicantly engaged in illicit capital fight and tax

avoidance and evasion practices is also conrmed

by recent research conducted by Global Financial

Integrity.72The Washington-based think tank estimates

that India could have lost as much as US$462bn

(294bn) between 1948-2008. The transer o deposits

rom Indian to oshore banks by individuals and

corporations is identied as one o the key routes o

illicit nancial fows out o the country. As the share o

oshore deposits increased rom 36.4 per cent o total

deposits in 1995 to 54.2 per cent in 2009, deposits in

Indian banks ell commensurately to 45.8 per cent.Not surprisingly, according to research by the OECD,

Mauritius, a tax haven, appears to be the top investor

country into India.73

Generous tax exemptions enjoyed by businesses and

individuals also help account or the low level o tax

raised as a percentage o GDP. A government estimate

o the revenue oregone in exemptions in 2011-12 alone

was US$99bn (63bn), which represents a staggering

5 per cent o GDP.74

Table 9, based on research by Christian Aid partner

CBGA, suggests tax-policy changes that could provide

additional revenue. The gures seem to indicate that

with a airer and more ecient tax system, the Indian

government could nd the resources required to

ensure ood security or all its citizens.


21/52


Table 9: How tax policies could provide revenue to tackle hunger

Area o intervention Policies to be adopted Estimated annual

additional tax revenue

Marginal tax rate on personal Increase marginal income tax rate on income above US$5.8bn (3.7bn)

income US$37,000 (23,532) rom the current 30 per cent to

40 per cent.

Capital gains tax Re-introduce long-term capital gains tax on securities US$13bn (8.3bn)

transactions, and tax short-term capital gainsprogressively as personal income. The current

zero tax on long-term capital gains on securities

privileges stock market speculation and avours

wealthy individuals.

Property tax, including Expand and make property tax more progressive; US$15.3bn (9.7bn)

wealth, inheritance and re-introduce inheritance tax (estate duty); improve

municipal property tax the targeting and valuation system or municipal

property tax.

Tax arrears Tax arrears should be collected immediately, and no US$11.5bn (7.3bn)

laxity should be shown in ling cases.

Tobacco tax Increase taxes on tobacco, as the current rate is low Increase o US$3.4bn

according to international standards. (2.2bn) and save

US$5.6bn (3.6bn)

on tobacco-related

diseases.

General anti-avoidance rule A strong GAAR should be introduced in order to

(GAAR) tackle aggressive tax planning by corporations.

The government decided to postpone this measure

to 2015-16.

Advance pricing agreements APAs could be established with some relevant US$4.3bn (2.7bn)

(APAs) corporations as a means to avoid transer mispricing.

Double tax avoidance The current double tax agreements with Mauritius US$2.3bn (1.5bn)

agreements and Singapore need to be reviewed in relation to the

treatment o capital gains tax.


22/52


el slvTable 10: Poverty and inequality in El Salvador

Population 6.225 million



Income GINI coecient 46.9

Average income 20% richest over 20% poorest ratio 12.1

Population living on less than US$1.25 (0.80) a day 5.10%

ource: UNDP, Human Development Report 2011.

able 11: The goal to eradicate hunger in El Salvador

1990-1992 2004-2006 2010-2012 2015 target

(reduce by 50% )

Level o

achievement

in 2012*

Number o people

undernourished

0.79 0.71 0.76 0.395 7.5%

(millions)Proportion o people 15.6% 12.6% 12.3% 7.8% 42.3%

undernourished

ource: FAO, The State o Food Insecurity in the World, 2

Level o achievement based on our own calculations.

012.

able 12: Child undernourishment in El Salvador Table 13: El Salvador in the Global Hunger Index 2012

Percentage o children who are stunted 24.6% 1990 1996 2001 2012


underweight

6.1% Global Hunger 10.1 8.7 5.4

Index

5.7

Mortality (per 1,000 births) 17 Source: IFPRI, Global Hunger Index 2012.ource: UNDP, Human Development Report 2011.

S

T

S

*

T

S

In El Salvador, the extent o undernourishment remains One child in our is stunted and, according to a recent

the same as 20 years ago. Despite a gross national World Bank study, 38 per cent o children aged 6-24

income per capita o almost US$6,000 (4,000), months are anaemic. In addition, one-third o all

the prevalence o hunger is very similar to the world deaths o children under ve is considered caused by

average: one in eight people are hungry. malnutrition.76 Eating varied and nutritious ood remains

a challenge in El Salvador, the World Bank concluded.

Although classied as a lower-middle-income country, a

recent government survey75 shows 47.5 per cent o the Inequality also remains an issue in El Salvador. In 2011,

population (47.6 per cent o women and 47.3 per cent o the richest 20 per cent o households enjoyed 58.3 per

men) live in poverty, o whom more than a third (15.46 cent o the national income, while the poorest 20 perper cent) live in extreme poverty. The governments cent accounted or just only 2.4 per cent.77 Exacerbating

estimation is thus largely consistent with the gures o matters is an unair tax system, where those with the

undernourishment provided by FAO, as shown in table greatest ability to pay ace the least taxes.

11 above.


23/52


altl vtmt tl El Salvadors lack o progress in tackling hunger cannot

be readily understood without considering the damaging

eects o the stabilisation and structural adjustment

programmes implemented since 1989. These are the

series o reorms demanded by donor governments and

international nancial institutions o poorer countries in

return or aid.

In El Salvadors case, they included a decrease in

trade taris, the suppression o agricultural marketing

boards, increases in the costs o agricultural inputs, the

elimination o guaranteed prices to producers, a cutting

back o agricultural research and technical assistance to

armers, and the reduction o credit to agriculture (rom

20 per cent o total credit in 1980 to 7 per cent in 2011).78

All are actors that help to explain to a large extent the

collapse o agricultural production, especially o rice,

corn, vegetables, meat and eggs. In 1993, El Salvador

produced 93 per cent o the ood grain consumed: today,

only 28 per cent o rice, 54 per cent o corn and 62 per

cent o beans eaten are produced locally. All the rest are

imported. In the case o vegetables, 70 per cent o the

amount consumed is imported.79

Today El Salvador invests just 1.5 per cent o its budget

in agriculture, as opposed to 5.2 per cent in 1990.80 More

than 80 per cent o its arms are small-holdings that

do not produce or market, nor do they have access to

modern production techniques and credit.

Unsurprisingly, the damaging eects o earlier policies

have led to a signicant increase in migration. In

1990, 60 per cent o the population lived in rural areas,

as opposed to 37 per cent today, while 3 million

Salvadorans have let the country, most to seek

new opportunities in the US.81

A vulnerable community the community. A small piece o land was assigned

to me by the community, so I can now produceChr some vegetables or our own consumption duringistianAid/Olg

the rainy season. Unortunately though, I cannot sell

ood at the market as we need to pay US$2 (1.27)a a day i we want to sell, or US$1 (0.64) i you only

o

Castr want to be there in the morning, but there have been

days where I sold nothing and had no money to pay

even US$1 (0.64).

I cannot get a decent job, and I cannot buy meat,

milk or even cereals or my children. I sometimes

work or another woman and sell the products that

she gives me, but with that I only earn US$3 (1.91)

The community o Milagro Belen is located in a day, not enough to take care o my amily.

Candelaria, a municipality in Cuscatln Region. It is

home to 350 people (200 women and 150 men), The act that larger companies and wealthy

most under the age o 35, grouped into 96 amilies, individuals do not pay their air share o taxes is

all living in poverty. outrageous. I wonder how it is acceptable that the

poorest people in El Salvador have to pay VAT, i

Families in the community mainly eat ruits and then large national and international companies do

vegetables, with occasional meat and dairy products. not pay taxes. The government has to require large

Food consumption is severely limited due to companies to pay their taxes, and with that money,

unemployment, problems to access markets, lack o it needs to create programmes to support rural single

land security and insucient credit. mothers, old people, and communities throughaccess to land, decent jobs, and seeds and ertilisers

Rosa Denis Aguilar, a 46-year-old woman, describes to grow our own ood.

the precarious living conditions aced by amilies in


24/52


The government o El Salvador is currently implementing

a ve-year development programme, with a total budget

o US$4.8bn (3bn), or an average o US$975m (620m)

per year. This plan ocuses mainly on improving access

and quality o essential services, while only 4 per cent

o the budget (US$40.6m/25.8bn) is directly devoted to

promoting agricultural production.82

Christian Aids partner FESPAD (Foundation or the Study

and Application o Law) considers that the government

should urgently upscale the plan to a total investment

o US$1.4bn (0.9bn) per annum. Some o the priorities,

as identied by FESPAD, should include the increase in

the level o credit available, the expansion o the national

production area, the growth o storage capacity, the

investment in agricultural research, the improvement o

irrigation systems and the promotion o womens access

to credit and land.

Investing to develop agriculture in rural areas would not

only raise national production, but also have an important

domino eect on other sectors o the economy, such astrade, banking services and construction, thus helping to

reduce hunger and poverty in El Salvador.

hw t l t tkl Two consecutive waves o scal reorms have been

adopted by the government o El Salvador in the past

ew years.

In 2009, new legislation was passed to counter transer

mispricing, and the capacity o the revenue service was

increased. A second wave o reorm took place in 2011

and brought signicant changes in relation to direct taxes.

Some 82,000 taxpayers with income below US$503

(320) per month were exempted rom paying taxes,

while the tax rate on income above US$6,200 (3,943)

per month was raised rom 25 per cent to 30 per cent.

On corporate income tax, the tax rate on income above

US$150,000 (95,400) was increased by 5 per cent, and

a tax rate o 1 per cent was created or businesses that

continued trading despite having declared losses or

two consecutive years. A tax rate o 5 per cent was also

introduced on dividends.

Although these are positive measures, the tax burdenas percentage o GDP in El Salvador is still below 16 per

cent, compared to the regional average at 18.3 per cent.83

In addition, the tax system continues to be highly

regressive, which partly explains the high level o

inequality. Compared to OECD economies, indirect

taxes in El Salvador provide a higher share o revenues

than direct taxes.

Within direct tax revenues, companies contribute 40

per cent more than individuals. Within individual tax

revenues, taxes on labour represent 57 per cent o the

total,84 which suggests that the tax burden in El Salvador

is disproportionately placed on ordinary people.

El Salvador also aces a very signicant challenge in

relation to tax evasion and generous tax incentives.

The government estimates tax evasion, oten in the

orm o transer mispricing, costs El Salvador as much

as US$1.7bn (1.1bn) a year, which is twice the 2012

scal decit.85

According to a report published by the Economic

Commission or Latin America and the Caribbean

(ECLAC), the overall income tax gap in El Salvador in2005 was estimated as 45.3 per cent o the tax income

revenue, equivalent to 3.1 per cent o GDP.86

O this, the tax gap or corporate income tax was

estimated as 51 per cent o the corporate tax revenue

and equivalent to 2.1 per cent o GDP, while the tax gap

or personal income tax was estimated as 36.3 per cent

o the revenue and equivalent to 1 per cent o the GDP.

As or tax incentives, a recent report by the scal

committee o the legislative assembly indicated that

there were 26 dierent laws in El Salvador that enabled

corporations to avoid taxes legally, oten through the

granting o incentives.87

The same report stated that the value o these

exemptions could have been as high as US$9.3bn (6bn)

between 2001 and 2009. For 2011, the commission

estimated a loss o US$1.2bn (0.76bn). The tax

incentives oered in special economic zones cost

US$206.5m (131.3m), a gure that represents 0.9 per

cent o GDP.

This implies that tax evasion and tax incentives together

are costing El Salvador more than US$2.9bn (1.84bn)every year. Taking action to collect 50 per cent o this

amount would provide much needed resources to

eradicate hunger in the country.


25/52


Table 14: How the government could increase tax revenue and combat hunger

Area o intervention Policies to be adopted

Tax evasion Strengthen legislation and the tax administrations capacity to ght tax

evasion, with a special ocus on tackling transer mispricing.

Tax incentives Review the current policies on tax incentives and other tax avoidance

provisions, and limit the granting o tax incentives to those cases

where they are really eective and benets are higher than the

associated losses.

Corporate income tax Introduce a more progressive corporate income tax system, where

those corporations that obtain higher prots contribute relatively more

to the exchequer.

Personal income tax Apply the minimum tax rates on income above US$800 (508) per

month, rather than the current US$503 (320). For single mothers, this

could go up to US$1,000 (636) per month. With this measure, it is

estimated that the government may lose US$35m (22.3m) per year,

but it would promote consumption and reduce inequality.

VAT Introduce a new 35 per cent tax on luxury items.

Property tax Introduce a new tax on property, with lower tax rates in rural areas.

Tax revenues rom property taxes could be transerred to municipalities

at local level.

Compiled by Christian Aids partner FESPAD.

ChristianAid/SusanBarry

This community lostits entire shrimpharvest due to theextreme oodingacross El Salvador

in October 2011caused by TropicalDepression 12E. Withno unds availableto help them rebuildtheir livelihoods,people had to repairthe damage and buynew shrimp larvaethemselves beorethey could startharvesting again


26/52


Population 25 million



Income GINI coecient 42.8

Average income 20% richest over 20% poorest ratio 9.3

Population living on less than US$1.25 (0.80) a day 30%


Table 16: The goal to eradicate hunger in Ghana

Ghana 1990-1992 2004-2006 2010-2012 2015 target

(reduce by 50%)

Achievement in 2012

Number o people

undernourished

6 2 1 3 Goal achieved as o

2012.

(millions)

Proportion o peopleundernourished

40.5% 9.5% 5% 20.25% Goal achieved as o2012.

Source: FAO, The State o Food Insecurity in the World, 2012.

Table 17: Child undernourishment in Ghana Table 18: Ghana in the Global Hunger Index 2012

Percentage o children who are stunted 28.6% 1990 1996 2001 2012


underweight

14.3% Global Hunger 21.4 16.3 12.8

Index

8.9

Mortality (per 1,000 births) 69 Source: IFPRI, Global Hunger Index 2012.


Ghana, a middle-income country since 2010, is widely

hailed as a positive development story. Clear policies,

together with a government commitment to support

and und them, have contributed to a signicant

decline in poverty and hunger, making it one o the very

ew countries in sub-Saharan Arica that could halve

poverty and hunger by 2015. Progress, however, has

been accompanied by increasing inequalities in the

living conditions o the Ghanaian people.

Agriculture is estimated to be the primary source o

livelihood or about 41.3 per cent o Ghanaians,88 withabout 80 per cent o total agricultural production in the

hands o smallholder armers.89 Yet smallholder arming

households, and in particular ood-crop armers more

than 50 per cent o whom are women are poorer

and more ood insecure than other groups in Ghana,

with about hal o them alling below the poverty line.

Today, around a third o the population lives on less than

US$1.25 (0.80) a day, more than 1.25 million people are

undernourished, and more than one child in every ve

is stunted.

The three northern regions in particular have suered

rom lack o targeted policies or, and limited investment

in, economic development. Fity-our per cent o the

extreme poor live in the Northern region alone, which is

home to only 17.2 per cent o Ghanas total population.

The Upper West, Upper East and Northern regionstogether make up 70 per cent o the countrys poor.90

These regions have unpredictable rainall patterns and

only one harvest each year in contrast with two in the

south. They also ace periodic drought and sometimes

gTable 15: Poverty and inequality in Ghana


27/52


foods, both o which are increasing in requency because

o climate change.91These climatic conditions, combined

with a series o challenges in the agriculture sector, create

an alarming situation that calls or urgent action. Most

people living in north Ghana do not have access to ood

or between three and six months a year.92 Families resort

to ood rationing in the long, lean season, and cut back to

two meals a day instead o three. In some cases, parents

go without to enable their children to eat, and livestock

and personal valuables are sometimes sold in order to

purchase ood, making the owners more vulnerable the

ollowing year as they have ewer assets to all back on.93

It is estimated that about 40 per cent o under-ve

mortality in Ghana is linked to malnutrition.94 According to

the World Food Programme, in 2007 chronic malnutrition

among children ranged rom 34 per cent to 48 per cent in

the Northern Region, and acute malnutrition rom 8 per

cent to 12 per cent in the Upper West and Upper East

Regions. In a bid to increase crop yields, many children

are taken out o school to work on their parents arms.

Central to the attainment o the vision o sustainable

long-term agricultural development is the need to

commit the requisite nancial resources to und the

sector, with special attention to irrigation, research and

technology, storage acilities and credit. A Medium Term

Agriculture Sector Investment Plan (METASIP) has been

developed to achieve an agricultural GDP growth rate

o at least 6 per cent annually, based on the Maputo

Declarations commitment to allocate at least 10 per

cent o government expenditure in agriculture.95

According to the nancial and investment plan contained

in the METASIP, it will cost the government o Ghana a

total o US$766m96 (487m) to achieve the objectives

o the sector or the period. O this amount, the

governments total unding contribution is 32 per cent.

Adopting policies to increase tax revenues could bridge

the unding gap o US$518.45m (329.7m).

e v l t t l mmGhana is the rst country in Arica to have adopted a

tailored national plan to promote a ree school eeding

programme, ollowing the recommendations o

the United Nations Millennium Projects Task Forceon Hunger and the New Partnership or Aricas

Development (NEPAD).

The programme started as a pilot in 2005 and has since

been expanded to target more than 1 million school

pupils rom deprived communities. The programme

aims at providing one hot and nutritious meal or each

child every day.

The programme targeted the eeding o 1,040,000

pupils by the end o the rst phase (2007-2010), but

it was only able to reach about 67 per cent o pupils

targeted.97 An additional US$ 34.5m (22m) would have

been required annually to meet the initial goal.98

In 2012, the programme was expected to reach 1,500,000

pupils with a unding requirement o about US$112m

(71.2m) to meet the target. However, the government

was only able to cover 38 per cent and the remaining 62

per cent had to come rom external donors.99

Currently, the programme covers just about 22 per cent o

all primary and kindergarten pupils across the country.100

Some donors have recently stopped their contributions, so

the eectiveness and sustainability o this programme is

largely dependent on a viable source o revenue.

ChristianAid/AntoinettePowell

Children at Gbanyamni primary school enjoy their schoollunch provided through Ghanas ree school eedingprogramme. Ensuring that Ghanas government can collectthe taxes it is owed will ensure more unds are available orthe programme to reach more schools


28/52


Fuel or learning

When I eat, I get energy, says Fuseini. I eel better

in class ater Ive eaten. I there wasnt ood or us at

school, it wouldnt be good or us.

ell

wo

But many children are yet to benet because thePet eeding programme does not run in their local

oine

t

school or because their parents rely on their help or

istianAid/Ant

arming. This is the case o Sulemana Alhassan, who

journeys several kilometres to his amilys eld to

work under the blazing sun. He is just 13.Chr

Sulemana would much rather be at school, but

Fuseini Fatmata didnt start school until she was nine without advice and support rom government on

years old. Now age 12, shes determined to do well, how to grow more without the need or extra labour,

but with money tight at home, breakast is never his ather says he needs Sulemanas help. I I dont

guaranteed. come to help my ather, where will they get enough

ood? asks Sulemana.

On the days she misses it, Fuseini struggles to

concentrate in class. Sulemana doesnt enjoy working on the arm andwould much rather be at school. When I am at the

Fuseini explains: Sometimes in the morning my arm I dont have a chance to talk to anybody and I

mother prepares rice and we eat it beore coming become tired. Sometimes I nd when I get home

to school. [Sometimes] we dont get anything. My there is nothing to eat. My whole body gets weak

stomach will be boiling when we dont eat and its and I will oten go to sleep early.

like a sickness to me. I eel dizzy and eel some

stomach pains and my mind is not on what they are I want to be in school because I want to be a teacher

teaching us in the class. in the uture. The reason I want to be a teacher is

they are normally paid at the end o each month. [I]

For pupils like Fuseini, Ghanas school eeding I got a salary at the end o each month, I could use it

programme means they get at least one nutritious to help my brothers and sister.

meal a day and can make the most o their lessons.

p m tw t t tkl A series o reorms in the 1980s to the Ghanaian tax

system contributed to improving overall tax collection in

Ghana, while making the system airer. As a result, tax

revenues today, as a percentage o GDP, are well above

the average in sub-Saharan Arica.

Direct taxes in Ghana are mainly individual income and

corporate taxes. Other types o taxes in the direct-taxcategory include capital gains, property and rent taxes,

which contribute marginally to the tax revenue due to

inadequate enorcement o these laws.

The tax burden on low-income earners has been

lessened through the abolition o tax on the minimum

wage and the introduction o a lower rate or those with

incomes only marginally above the minimum wage. This

is to ensure that disposable income or household basic

consumption stays above the minimum wage.

The corporate tax rate was reduced rom 32.5 per cent

in 2001 to 25 per cent in 2006. However, to increase tax

revenue, the mining sector corporate income tax ratewas increased to 35 per cent in 2012.

The contribution o direct taxes to total tax revenue has

been increasing since 2001, rising rom 24.61 per cent in

2001 to 32.84 per cent in 2005, and 34 per cent in 2009.


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However, while the share o personal income taxes to

total direct tax revenue is increasing, that o corporate

tax ell rom 47 per cent in 2005 to 40 per cent in 2009.

Indirect taxes continue to be a major source o tax

revenue, accounting by the third quarter o 2011 or

about 33 per cent o total tax revenue.101 Some provision

has been made to reduce the burden on the poor, with a

range o basic consumption items exempted rom VAT.

During the 2008 ood crisis, the government removed

the 20 per cent import duty on rice and other basic ood

to keep prices down.102

In the same year, a communication service tax was

introduced to help und the national youth employment

programme (NYEP) and a 6 per cent charge is now

levied on all communications and related services

(such as internet and data services).103 As o June

2012, a total o 457,779 young people who would have

been vulnerable to poverty have been engaged in the

programme.104

Ghana passed a new transer pricing regulation

in 2012 and has since trained a team to oversee

its implementation. It has also signed the Mutual

Administrative Assistance in Tax Matters, a convention

that acilitates the sharing o inormation between the

tax authorities o signatory nations.105

s

cll mDespite Ghanas progress in improving tax revenues and

making the system airer, a number o challenges remain.

Coordination among the revenue collection agencies

has been a major challenge to building an ecient tax

system. This has been exacerbated by the absence o

proper mechanisms to share tax inormation among the

Ghanaian institutions concerned. While the government

has undertaken some important initiatives, such as

the creation o an integrated Ghana Revenue Authority

(GRA) in 2009 and the establishment o the Tax Policy

Unit to strengthen the capacity in the pursuit o

accountable, transparent and sustainable tax policies,

law and reorm and capacity building is still needed.

Increasing taxes rom the inormal sector, in which 80per cent o the working population is engaged, is a major

challenge because there are ew records o accounts,

many people earn very little income, and workers are

oten invisible to the authorities.106

Recently, new measures have been introduced including

a tax on public transport operators and a tax stamp or

small traders, but these bring in relatively little revenue.107

Christian Aid partners in Ghana have been working

with emale small traders who pay taxes and demand

accountability rom the government on that basis.

Generous tax incentives oered to oreign investors are

also a problem. Although corporate taxes in the mining

sector have been increased, along with a windall prot

tax o 10 per cent, exemptions seriously undermine the

potential revenue gains.108

The IMF estimated that tax exemptions amounted

to about 1.6 per cent and 0.9 per cent o GDP in 2009

and 2008 respectively,109 while the Ministry o Finance

and Economic Planning indicate Ghana may be losing

US$700m (445m) per annum rom VAT and import

exemptions. Christian Aid partner Ghana Integrity

Initiative (GII) has been campaigning or a tax-incentive

ramework that is transparent, accountable and well

targeted.

Ghanas revenues are also being undermined by

corporations not paying their due royalties. Research110

undertaken by Christian Aid and other development

agencies in 2007 revealed that mining companies have

never paid royalties above 3 per cent, despite the higher

rates on a sliding scale stipulated in the Minerals and

Mining Act. These lower royalties led to lost revenue o

US$68m (43.2m) a year between 1990 and 2007.

Finally, transer pricing abuse needs to be tackled.

Analysis o the mining sector suggests that some

US$36m (22.9m) is lost through transer mispricing

each year.111 In addition, Christian Aid research has

showed that the average amount o tax loss to Ghana

in trade relations with the EU between 2005 and 2007

through trade mispricing was between 30.7m-51.4m

(US$41.1m-US$68.9m/26.2m-43.8m) each year.112

In 2008, the country lost 62.4m (US$83.6m/53.2m)

because o trade mispricing, which accounted or about

3.4 per cent o total tax revenue in the same period.113

The challenges described seriously undermine the

capacity to raise tax revenues and address ood

insecurity and poverty in Ghana.


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4. secret links:hoW companies

can use tax havensto dodge taxes

ChristianAid/RachelBaird

Mopani Copper Mine in Muulira, Zambia. The mine is largelyowned by a subsidiary o FTSE100 giant Glencore. It has beenaccused o dodging tax in Zambia, an allegation it denies. Inaddition, it causes signifcant local environmental damage sulphur dioxide air pollution and soil pollution so bad that mostplants will not grow and, local people suspect, chronic pollution othe water they drink. Christian Aid partner the Centre or Tradeand Policy Development is supporting a local campaign group todemand improvements to the Kankoyo environment


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New research by Christian Aid into the fnancial and

ownership data o MNCs operating in India, El Salvador

and Ghana strongly suggests that corporations with links

to tax havens are not paying their air share o tax.

o t mtllOur research was to establish whether MNCs with

subsidiaries in tax havens114 pay less in taxes than

corporations without such links, based on the hypothesis

that, because tax havens oer secrecy and nil or low tax

rates, enterprises using their services have greater incentives

and opportunities to dodge taxes than those that dont.

To test this, we analysed three dierent indicators:

pre-tax prots reported per unit o asset, as a proxy

or the corporates tax base115

taxes paid per unit o asset

taxes paid per unit o pre-tax prot, as a proxy orthe average eective tax rate.

The concrete research goal was to test i MNCs with

connections to tax havens report lower pre-tax prots per

unit o asset and pay less in taxes per unit o asset and

unit o prot than other multinational corporations. The

level o revenue was not used as a variable in our research

because revenue itsel is oten aected by prot-shiting

strategies, so the preerence was to use assets instead.

In order to carry out our research, we obtained access to

Orbis,116 a commercial database containing consolidated

and unconsolidated nancial and accounting data, as

well as inormation on shareholders and subsidiaries o

around 108 million national and multinational companies.

Data in Orbis is derived rom ocial balance sheets, prot

and loss accounts, and nancial statements notes, and is

complemented with news, market research, inormation

rom ocial bodies (or example, stock exchanges) and

private correspondence. The producer o the data has

also developed a uniorm ormat that is applied to each

entity analysed in order to address comparison issues. In

our own research, we used the data available in Orbis or

India, Ghana and El Salvador to produce both descriptive

and regressive statistical analyses.

However, two considerations need to be taken into

account. First, data available or all the required variables

or El Salvador and Ghana was limited to a relatively small

number o corporations, so the aggregated results, and

thereore conclusions, are to a very large extent driven by

India, or which data in Orbis is much more abundant.

This limitation also implies that only descriptive

statistical analysis was applied to Ghana and El

Salvador, as regression models require a higher sample

o observations than are available in Orbis or thesetwo countries.

Secondly, because the data used in our analysis

belonged to MNCs o dierent sizes and operating in

dierent sectors with heterogeneous characteristics,

eg dierent average protability ratios, we took the

precaution o controlling or these dierences in our

regression model. In other words, we wanted to make

sure that dierences ound were really attributable to the

use o tax havens, and not to other variables such as the

size o the MNC or the sector where it operates.

Table 19 shows the results obtained in our research

when we analysed data rom those MNCs with asset

values o at least US$10m (6.36m).

Table 19: Aggregated results or MNCs with asset values o more than US$10m (6.36m)

MNCs with no tax MNCs with tax haven links Dierences observed: how much

haven links less profts reported and less

Indicator Numbero MNCsin sample

Resultsobtained or oursample o MNCs

Numbero MNCsin sample

Resultsobtained or oursample o MNCs

paid in taxes per unit o asset and

unit o proft respectively when

the MNC has links to tax havens

Prots reported per

100 units o assets

770 6.9 727 6.6 4.3%

Taxes paid per 100

units o assets

681 2.3 668 2 13%

Taxes paid per

100 units o prots

680 24.2 667 17.2 28.9%

Source: table uses data rom Orbis 2010.


32/52


As table 19 indicates, MNCs with connections to tax Tables 20, 21 and 22 show the results we obtained or

havens reported in 2010, on average, 4.3 per cent less each specic ratio and country on the basis o the data

prots per unit o asset; paid 13 per cent less taxes per available or all MNCs operating there, regardless o thei

unit o asset; and 28.9 per cent less taxes per unit o size. As stated above, only the sample or India is large

prot than MNCs with no links to tax havens. These enough to draw statistically meaningul conclusions.

results strongly suggest that MNCs with links to tax However, the descriptive results obtained or Ghana

havens use income-prot-shiting strategies to reduce and El Salvador, based on a much lower number o

their tax bills. corporations,117 may suggest that prot shiting could

actually be a more serious problem in those countries

with less administrative capacity to tackle tax dodging,

so urther research should be undertaken.

r

Table 20: Profts declared per 100 units o assets

MNCs with no

tax haven links

Country Number Profts

MNCs with tax

haven links

Number Profts

How much less profts reported

per unit o asset when the MNC

has a tax haven link

India 787 6.6 738 6.5 1.5%

Ghana 25 4.8 3 3 37.5%

El Salvador 15 15.9 16 4.8 69.8%


Table 21: Taxes paid per 100 units o assets

MNCs with no

tax haven links

Country Number Taxes paid

MNCs with tax

haven links

Number

How much less paid in taxes per

unit o asset when the MNC has

a tax haven linkTaxes paid

India 722 2.3 685 1.9 17.4%

Ghana 6 3.1 2 0.9 71.0%

El Salvador 4 0.7 5 0.2 71.4%


Table 22: Taxes paid per 100 units o proft

MNCs with no MNCs with tax

tax haven links haven links

Country Number Taxes paid Number

Taxes paid

How much less paid in taxes per

unit o proft when the MNC has

a tax haven link

India 714 24.1 683 16.8 30.3%

Ghana 6 17.1 2 8.6 49.7%

El Salvador 3 22 5 8 63.6%



33/52


As indicated in table 22, MNCs operating in India (4.8bn) would have been raised. However, we are not

with connections to tax havens are ound to pay, on suggesting that the dierence in the eective tax rates

average, 30.3 per cent less in taxes per unit o prot is entirely explained by prot shiting; other actors, such

than those MNCs with no tax haven links. Considering as the impact o tax incentives, could have an infuence

that all MNCs with tax havens links in our sample made as well. In any case, the eective rate estimated in our

total prots o US$104bn (66.1bn) in 2010, had they research is signicantly lower than the Indian corporate

paid the same eective tax rate as MNCs that do not income tax rate (33 per cent).

use tax havens, additional tax revenue oUS$7.5 bn

Table 23: Additional tax could be obtained i MNCs with tax-haven links paid the same tax rate as other

MNCs

Profts declared Eective tax rate Eective tax rate Eective tax rate Tax revenue that

by MNCs in our or MNCs with no or MNCs with tax dierence could have been

sample with tax tax haven links haven links lost due to proft

haven links shiting by MNCs

with tax haven

links

104,000,000,000 24.1 16.8 7.3 7,592,000,000

Source: research results based on our own estimation, using data rom Orbis 2010.

The results obtained in the descriptive analysis are where MNCs can exploit the existing legal loopholessupported by those obtained in the regression model, and secrecy provisions to avoid paying their air share

as shown in appendix 1. Our regression results remain o tax.

valid when we control or both sector heterogeneity118

and company size. All the dierent specications in the While the separate legal entities that orm a multinational

regression analysis show consistent results and indicate corporation are treated rom a tax perspective as i they

that MNCs with links to tax havens report ewer prots were independent companies, the truth is that they all

and pay less in taxes per unit o asset and prot. In the ollow an overall business strategy. Today, management

regression analysis, our results are particularly strong lines clearly go beyond national boundaries.

(statistically signicant) when the variable taxes paid per

unit o asset is analysed. In its report, the OECD identies prot shiting as a

undamental cause o tax dodging. Similarly, the OECD

Christian Aids research strongly suggests that acknowledges the increased segregation between

multinationals oten use tax havens to shit prots the location where actual business activities and

rom higher to lower tax jurisdictions. In many cases, investment take place and the location where prots

these tax haven subsidiaries lack economic substance are reported or tax purposes. In other words, MNCs

(eg there are no manuacturing processes or products are transerring mobile activities to where they benet

sold in the tax havens market), which implies that they rom a avourable tax treatment.

could exist or the only purpose o avoiding and evading

taxes. Our ndi

who pays the price hunger the hidden cost of tax injustice may 2013

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