Malawi, the poorest country in the world, has lost out on US$43 million in revenue over the last six years, from a single company – the Australian mining company Paladin. The money has been lost through a combination of harmful tax incentives from the Malawian government, and tax planning using treaty shopping by Paladin.
Tax pays for public services such as education, health care and social services, crucial for women, who often end up as the unpaid providers in the absence of decent public services. It also pays for infrastructure to provide clean water, functioning roads and communication systems, all of which are essential for a country to develop and for business to operate.
For most countries, tax revenue is also the most important, sustainable and predictable source of public finance. For the poorest countries especially, tax revenue is key to ensure they have the funds needed to fund their development without being reliant on foreign aid.
Ensuring that enough tax revenue is raised to fund essential services and infrastructure projects should therefore be a key priority for all countries. Yet, developing countries lose billions of US dollars in potential tax revenue each year by giving international companies harmful tax breaks, while some international companies engage in tax planning to pay less tax in developing countries. The global network of tax treaties facilitates this. The compound effects of harmful tax breaks and corporate tax planning is devastating for the finances of developing countries.
The findings in this report demonstrate that the development effects of tax dodging by multinational companies are a systematic problem in poor countries, and these are not isolated cases – rather, it is business as usual. The solutions to the problems that tax dodging by multinational companies cause must therefore be addressed on a systematic rather than a case-by- case basis.
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