A colonial-era tax treaty between Malawi and the UK is costing the southern African country significant amounts of lost tax revenue and must be reformed, the charity ActionAid has said.
The group said that the 60-year-old tax deal, which allows British multinationals firms operating in Malawi to move out revenue untaxed, was hindering investment in chronically underfunded public services like schools and hospitals.
Malawi is the world’s poorest country, with a gross domestic product per person of just $255 per year, less than a dollar a day. The whole country has only around 300 doctors for 16 million people, ActionAid highlighted.
The tax treaty, signed in 1955, enables UK multinationals to move money out of Malawi untaxed using methods such as interest or management fee payments, dividends or royalties.
UK companies had investments worth US$157m in Malawi in 2010, the latest year for which United Nations data is available, which means the country likely misses out on significant amounts of revenue from UK companies. Overall, the International Monetary Fund estimates that developing countries may lose $200bn a year to corporate tax avoidance.
Bubbily Silungwe, 22, a student of Nutrition & Livelihoods Security in Lilongwe, expressed anger with the tax injustice.
“I am angry, really really angry that there are big companies coming to Malawi and not paying tax here. I don’t know how they sleep at night. I don’t know their conscience,” said Silungwe.
She is furious that big UK companies are able to work in her country, yet could be paying barely any tax because of a 60 year old tax treaty.
“We can’t do without tax. The situation is unimaginable; I don’t know what to say. The hospitals are suffering. We need companies to pay taxes.”
ActionAid’s tax policy adviser Anders Dahlbeck highlighted that the treaty, which has been little altered, had tied the hands of Malawian governments in subsequent years.
The treaty was signed in 1955 by the British governor of Malawi on behalf of the governments of the then British colonies of Southern Rhodesia, Northern Rhodesia and Nyasaland.
“This is part of a global problem that hits the poorest hardest. Developing countries estimated to lose $200bn a year to tax avoidance by multinational companies, with women and girls living in poverty paying the price as schools and hospitals are starved of cash,” he said.
“It’s time for the UK government to make tax fair and put the fight against poverty at the heart of its tax policy. Ministers must work with Malawi to renegotiate the tax treaty to ensure that UK companies pay their fair share in the world’s poorest country.”
Dahlbeck said the UK now has an opportunity to put the fight against poverty at the heart of its tax policy and negotiate a new treaty that ensures UK companies pay their fair share in Malawi.
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