ActionAid Zambia has urged government to take criminal action against all those involved in illegal financial dealings to increase transparency in the tax system by introducing a public register of beneficial ownership.

In a statement today, ActionAid country director Nalucha Ziba said all the loopholes that allow tax avoidance needed to be closed and that government needed to thoroughly investigate all high net-worth individuals and corporate bodies that were operating offshore accounts.

“The recent revelations in the Paradise Papers about how rich and powerful individuals, politicians and multinational corporations use tax havens to shift profits from one jurisdiction to another, echoes our demands about the need to address illicit financial flows. Although it is not illegal to move profits to a tax haven, the challenge is that individuals and business entities hide profits in tax havens far away from the tax authorities in the countries where the profits are generated. This then is the question of morality. Mostly, in developing countries like Zambia the appetite to attract foreign investment is big such that a lot of tax incentives are given to investors. As a result, due to tax incentives, investors may pay very low taxes or may not be paying tax for a period of time,” Ziba stated.

“The Paradise Papers leak also includes references to Illovo Sugar operating in Zambia as Zambia Sugar. This revelation vindicates us; according to our study titled ‘Sweet Nothings’, we established that in November 2007, Zambia Sugar borrowed US$70 million from two commercial banks, using the money to expand its huge sugar estate in Zambia. Given that loan repayments attracts Withholding Tax (WHT) on interests, to avoid paying WHT on interest payment, the loan was channeled through Illovo Sugar Ireland, with the banks actually lending the money to the Illovo Sugar Ireland, which then made an identical matching loan to its sister company, Zambia Sugar. By channeling the loan through Illovo Sugar Ireland, WHT on interest payment is avoided because then the Zambia-Ireland Double Taxation Agreement (DTA) denies Zambia any right to tax interest payments, or most other international payments from Zambia to Ireland,” she stated.

Ziba insisted that those involved in illegal financial dealings should be criminalised.

“We urge government to investigate high network-worth individuals, corporate bodies and public officers operating offshore accounts and investing in tax havens. To this effect, those engaged in illegal financial dealings should be criminalised. Government should take action to increase transparency in our tax system, starting with a public register of a beneficial ownership. This policy would reveal the true owners of anonymous companies and trusts, shining a light on the tax. In addition, government should close all the loopholes that allow for tax avoidance. This includes reviewing and renegotiating outdated double taxation agreement to include good strong provisions such as higher caps on WHT taxes. On the international stage, the Zambian government should push for an Intergovernmental tax body that will seek to fairly and transparently address tax grievances,” stated Ziba.