poverty-in-India3The revelations contained in the Panama Papers have turned the spotlight of public opinion onto the tax avoidance strategies of the global elite. Governments of the US and EU were already pressurising transnational corporations to pay tax on profits generated in their respective countries, and BRICS nations like India have been flirting with General Anti-Avoidance Rules. The principle is simple: if a business operates in a country, then it benefits from public infrastructure and so should contribute to maintaining it. It has a name: tax justice.

Call a spade a spade

While currently legal, tax “avoidance” (apparently not to be confused with the semantically identical tax “evasion”) must be looked at from the perspectives of various stakeholders. Transnational corporations and investors, seeking to reduce their tax liabilities, are the main beneficiaries of tax avoidance mechanisms. Third party countries, like Mauritius, also benefit in terms of employment, licence fees and taxes from their offshore financial sectors. The losers are the countries where the actual business activities take place. They are being deprived of their rightful tax revenues. For developed countries, this can necessitate austerity; but for developing countries, it prevents investment in essential public infrastructure and services that would help lift their populations out of poverty.

So let’s call it what it is, not tax avoidance by the rich, but tax deprivation of the poor. Mauritius is just one node in a worldwide web established by the global elite to grow their wealth at the expense of everyone else. Saying that we are not at the heart of it nor the worst offender does not excuse our willing complicity in this international conspiracy. More so because Mauritius is positioned to deprive some of the most impoverished countries in the world of desperately needed tax revenue: India and continental Africa.

A stinking pile of…

Transnational corporations and investors utilise Mauritius by establishing shell companies and funds that pretend to be managed here. For a fee, we award them a certificate of tax residence allowing them to benefit from our suite of Double Taxation Avoidance Agreements. Many forget that DTAA’s were first created to prevent expatriates being taxed on the incomes they took home if they had already been taxed in the country where they earned them. These treaties have been taken over by transnational corporations and investors to avoid paying their fair share of taxes. Unable to modify its DTAA with Mauritius unilaterally, India is seeking to tax those companies that don’t have a substantial presence on our island. With few exceptions, the only substance you will find in the Mauritian offshore sector is bullsh*t.

Mauritius is an attractive tax jurisdiction because there is zero tax on dividends and capital gains. Instead of paying 15% income tax like every other resident, we “assume” that offshore companies have already paid income tax in the countries where they operate and thus tax them at a minimal rate of only 3%. However, if they were paying income tax elsewhere, paying additional tax in Mauritius would be an unnecessary and stupid expense. More bullsh*t. In contrast to ordinary tax payers, we do nothing to verify the tax returns submitted by these companies. Bullsh*t upon bullsh*t upon bullsh*t.

Clean it up

The days of unjust tax avoidance are numbered. We can follow our normal behaviour of burying our heads in the sand and later complaining of external “shocks” or we can be proactive, redeem our reputation and stop robbing the poor to give to the rich. The first thing to do is end the privileged 3% tax rate and require offshore companies to pay 15% income tax like the rest of us, unless they can provide a tax receipt from the countries where they operate.
Next we must address the thorny issue of taxes on capital gains and dividends. The local elite, whose prosperity depends on such sources of income, without having to lift a finger to earn them, will complain that the companies they own have already paid taxes. Indeed so, it is only right that their businesses contribute to the upkeep of the public infrastructure that they have used. But isn’t the same also true for individuals? Don’t they benefit from public infrastructure too, even if they don’t have to go out to work? Or would they prefer a tax on their wealth?

Taxes on income, dividends and capital gains from offshore companies would be a windfall, wiping out a significant portion of our national debt – perhaps enough to meet the 50% statutory debt ceiling by 2018. It would certainly impact our offshore sector but who wants Mauritius to continue as a collaborateur of the global elite at the expense of our disadvantaged sisters and brothers in Africa and India? Loss in government revenue can and should be made up by just taxes on the local elite. If they want to leave our shores too, then good riddance to them. Wouldn’t we happily replace them with decent people who are attracted to our increasingly harmonious nation because we strive to reduce inequality and champion social justice?