The EU-based multinationals have been accused of exploiting existing tax avoidance loopholes introduced by the World Bank and the International Monetary Fund (IMF) that are allegedly costing African countries double the amount they receive in foreign aid. Mining and telecommunications are the two largest sectors in Tanzania where EU-based companies exploit the loopholes for their own benefit, and, for example, almost all the mining operations in Tanzania are said to be from Europe. Zitto Kabwe, a Tanzanian MP who is also chairman of the country’s public accounts committee, said that Tanzania was forced in the late 1990s by both international institutions to sign tax rules and tax laws which are favourable to investors, while depriving it of much needed revenue.
While pointing out that this entrenched system “is killing [Tanzania], you cannot now explain poverty in Africa without this and this is the story that has been supressed for so long,” Mr. Kabwe also stressed that EU and other Western multinationals, including a Tanzanian state owned company, use tax havens and other illicit schemes to scam African countries out of around $50 billion every year. By comparison, these African countries in need receive approximately $30 billion in foreign direct aid per year. However, according to some estimates, about twice the amount of foreign aid that the continent receives is getting out of Africa through illicit financial transfer, through tax avoidance and similar schemes.
Moreover, an IMF report on Tanzania published in 2011, noted the country is unable to collect taxes due by foreign companies. The Tanzanian MP also noted that the IMF and the World Bank advised African states to design policies and laws which multinational corporations “are abusing to avoid paying taxes in our countries.” In contrast to EU-based companies, Chinese corporations working in Africa are said to be more transparent on taxes and pay their dues though they allegedly tend to scam on public procurement. The EU, for its part, has proposed reforms – backed by the European Parliament in June 2013 – on accountancy and transparency directives. The reformed EU law is set for launch in 2015.
