Tax dodging: why children end up paying

A school in rural Malawi
A school in rural Malawi

I recently visited a rural area in Malawi, where the school only had enough classroom blocks for half of the children enrolled, the only health centre was run by a retired nurse and there was no police presence to report crimes like child abuse. In Malawi, this isn’t unusual – it’s the third poorest country in the world, and shockingly poor infrastructure and public services are commonplace.

That’s why Save the Children’s programmes and advocacy within Malawi are focused on reaching Every Last Child in these areas – ensuring that girls stay in school and that women of reproductive age and children under five get the healthcare they need.

It’s vital work, but it won’t solve the problems on its own. The Government of Malawi also desperately needs to plough money into public services, to level the playing field and ensure every child has access to healthcare and learning.

One way Malawi can raise the money that’s needed is by increasing the amount of domestic tax it collects.

But countries like Malawi are losing millions of potential tax revenue each year due to complicated tax schemes and the use of offshore tax havens by multinational corporations and wealthy individuals.

The recent Panama Papers leak revealed a number of companies based in developing countries are registered with Mossack Fonseca in the British Virgin Islands. Registration of these companies in tax havens makes it difficult for tax authorities, including the Malawian Revenue Authority, to scrutinise their affairs and ensure the correct tax is collected.

Huge health financing gap

The gap between resources needed to meet Malawi’s health needs and actual health expenditures is substantial; it’s expected that it will reach $458 million in 2015–2016. As a result, the Malawian Government has announced that it will introduce healthcare user-fees from July. This means charging patients at the point of service – a cost that most households will be unable to manage.

Worse still, it has been revealed that since 2004 Malawi lost, on average around $650 million a year through illicit financial flows – significantly more than the amount needed to plug the health financing gap.

This is a recurring theme. Save the Children estimates that around $78billion is lost annually in tax avoidance in the 75 countries where most of the world’s child and maternal mortality occurs.

What the UK can do

But we in the UK can help change this. On Thursday, the UK Government launched a central public register of beneficial ownership which will uncover the real owners of companies and allow national tax authorities to scrutinise company taxes. This is an important step, but one that is weakened when tax havens like the British Virgin Islands are left untouched.

The UK’s crucial efforts to end poverty and meet the Sustainable Development Goals in 2030 are being undermined by the use of tax havens – a third of which come under the UK’s jurisdiction. The UK must continue to show leadership in this area and force tax havens to publish their own central public registries of beneficial ownership.

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