World Bank accused of funding potential tax cheats

Oxfam says global lender should seek proof of tax compliance before providing capital to firms.

World Bank President Jim Yong Kim holds a press conference in Amman on March 27, 2016. The bank has been accused of funding funding potential tax cheats in Africa. PHOTO | AFP  

In Summary

• A British non-profit, Oxfam, claims the global lender financed 75 per cent of companies with a presence in tax havens in 2015, calling on it to ensure proof of tax compliance before providing loans.
• The Oxfam analysis focused on IFC’s investments in sub-Saharan Africa, revealing that it has more than doubled its capital outlays in companies that use tax havens in just five years — from $1.20 billion in 2010 to $2.87 billion last year. 

By EDWIN OKOTH

The World Bank has been accused of funding potential tax cheats in Africa through its private lending arm, the International Finance Corporation.

A British non-profit, Oxfam, claims the global lender financed 75 per cent of companies with a presence in tax havens in 2015, calling on it to ensure proof of tax compliance before providing loans.

“Oxfam analysis reveals that 51 of the 68 companies that were lent money by the World Bank’s private lending arm in 2015 to finance investments in sub-Saharan Africa, use tax havens. Together, these companies, whose use of tax havens has no apparent link to their core business, received 84 per cent of the International Finance Corporation’s investments in the region last year. Oxfam is calling on the World Bank Group to put safeguards in place to ensure that its clients can prove they are paying their fair share of tax,” reads the report titled the IFC and Tax Havens.

Asked about the report, World Bank officials presenting the African economic update in Nairobi yesterday termed it “difficult”. World Bank chief economist for Africa Punam Chuhan-Pole said although she had not seen the report, the global lender supports African countries in taming illicit capital outflows as well as recovering stolen wealth.

The WB and IFC are preparing for their spring meeting in Washington from tomorrow and are expected to react to these allegations in the wake of the Panama Papers scandal, which reveals how powerful individuals and companies are using tax havens to hide wealth and dodge paying the dues.

CORPORATE CLIENTS

The Oxfam analysis focused on IFC’s investments in sub-Saharan Africa, revealing that it has more than doubled its capital outlays in companies that use tax havens in just five years — from $1.20 billion in 2010 to $2.87 billion last year. 

Mauritius was once again singled out as the most popular haven for IFC’s corporate clients, with 40 per cent of them investing in sub-Saharan Africa having links there.

Mauritius is also known to facilitate “round-tripping”. This is where a company shifts money offshore before returning it disguised as foreign direct investment, which attracts tax breaks and other financial incentives.

The small island allows companies to reap the reward of tax benefits only available to foreign investment; the money is subject to tax breaks rather than capital gains and income tax that should rightly be charged on domestic investment.

As an example, 34 per cent of total investment to India from 2000 to 2015 has come from Mauritius, most of it from the same building in Port Louis, the capital.

Kenya is among sub-Saharan African countries that comprise the poorest region in the world. The nations desperately need corporate tax revenues to invest in public services and infrastructure.

“It doesn’t make sense for the World Bank Group to spend money encouraging companies to invest in “development” while turning a blind eye to the fact that these companies could be cheating poor countries out of tax revenues that are needed to fight poverty and inequality,” said Oxfam tax policy adviser Susana Ruiz.