21,000 sign petition on Malawi-UK tax treaty
A petition calling on the governments of Malawi and United Kingdom to renegotiate a 1955 tax agreement between the two countries has so far attracted 21,000 signatures as of Thursday this week.
The campaign targets 25,000 endorsements.
As Malawi perennially grapples with how to find adequate resources to finance public services, it has emerged that a tax treaty which Malawi and United Kingdom signed 60 years ago while Malawi was still under British colonial rule is still in force.
The treaty has thus become a subject of a campaign by the anti-poverty charity Action Aid International which says this colonial piece of legacy makes it possible for UK companies operating in Malawi to pay little or no corporate tax at all.
“This is money that should be funding Malawi’s public services,” says Action Aid in its online campaign brief where people are signing.
To give a picture of how the treaty worsens Malawi’s development situation, Action Aid cites that Malawi has the world’s highest rate of maternal mortality, partly because healthcare is so underfunded and that there are only 300 doctors in a country of 16 million people.
“If companies paid their fair share of tax, investment in public services could be increased so that women and girls no longer pay the price,” says Action Aid’s in its ‘Make Tax Fair Everywhere’ campaign brief.
It urges: “We’re calling on the UK Government to put the fight against poverty at the heart of its tax policy. It needs to renegotiate its treaty with Malawi, to make sure that UK companies pay their fair share of tax in the world’s poorest country.”
The wording of the treaty basically suggests that both governments should have been benefiting from the agreement.
But Malawi is clearly the loser in the deal as compared to UK. At the time of the signing of the treaty in 1955, UK was already heavily industrialised.
In addition, the UK also already had some big investments in Malawi in sectors such as agriculture.
To date, Malawi does not have any significant investment in the UK.
The treaty “for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income” applies on income tax, profits tax and excess profits levy in both countries.
The treaty was signed in London on November 25, 1955 with a R.A Butte representing the United Kingdom government and a G. McC. Rennie representing the Malawi Government.
Interestingly, Rennie was a British government appointed governor in the Rhodesia and Nyasaland federation.
British High Commissioner to Malawi, Michael Nevin, and Minister of Information Jappie Mhango told Malawi News last month that they were already negotiating on the revision of the deal.
And in a statement released in reaction to publication of reports about the treaty last month, Secretary to the Treasury, Ronald Mangani, said while the current double taxation treaty is indeed aged, “there is no evidence that the agreement has motivated some British investors to deprive the Malawi Government of its revenues.”
“On the contrary, both the Malawi Government and the British Government, as well as the nationals of the two countries, have evidently acted in good faith to ensure that neither party is exploited on the basis of the current agreement,” said Mangani in a statement published on February 27.
According to Action Aid, every year, unfair international tax rules allow international companies to dodge billions of pounds of tax in developing countries. This is the money that could pay for essential services like schools and hospitals, it says.
Making reference to findings by the International Monetary Fund (IMF), Action Aid reports that poor countries lose up to US$200 billion every year to tax dodgers.
This, it says, is far more than the international aid sent by all rich countries put together.
For Malawi, a December 2014 report by the Global Financial Integrity (GFI) revealed that Malawi lost a staggering US$5.8 billion just between 2003 and 2012 through illicit financial flows.
According to GFI, a US-based research and advisory organisation, illicit financial flows include tax evasion, corruption, money laundering techniques and use of shell companies for the transfer of dirty money.
Action Aid is fighting against these malpractices in its campaign.
“A fair tax system means everyone pays their fair share – big companies included. It’s time to make tax fair. Everywhere,” says Action Aid.
It says a renegotiated tax agreement between Malawi and the UK would give Malawi the right to increase taxes on money which UK companies take out of the country without greatly affecting the tax the company would pay in the UK.
The petition on Malawi-UK treaty is to be presented to the UK government through treasury minister, David Gauke.
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