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Tax and Debt Justice: Why the Catholic Church Must Seek to be involved now.

By Pascal Pax Andebo - JENA, Research and Advocacy Officer

Imagine hearing your Parish Priest, as part of his preaching, telling you to pay taxes to the government as a Christian obligation. Then he proceeds to read a long pastoral letter from the Bishops, which lays emphasis on the need to pay taxes, among other things. Has the historical alliance between Church and State begun again; an alliance, which made a dent in the Church for centuries, was considered part of the reason for Reformation? Yes, you are reading here about a topic, calling for the Catholic Church in Africa, and indeed the whole world, to be actively involved in advocating for increased public resource mobilisation through taxes, but in a better way. Jesus, responding to Pharisees, made the distinction between paying to Caesar and to God (Luke 20:25). The key question is: what would require the Church in Africa to be involved in advocating for increased revenue mobilisation?

The Synopsis

To answer the key question, it is important to see the reality of the African countries and their citizens, that the Church leaders find themselves serving, making do with the meagre resources of the Church. The Church has undertaken tasks for which governments are supposed to be responsible and accountable. In fact, in some locations, the Church finds itself in the rather uncomfortable situation of being the “government”, providing for all the basic services the citizens need. The Church’s work for social justice is stretching more and more to include providing for the basic needs of the people in her care. However, this only makes the Church look like a provider of these services. Though this is good, the Church has another mission of advocating for the rights and dignity of the human person.

A synopsis of the situation in Africa, especially Sub-Saharan Africa, sadly makes the continent appear to be the epitome of poverty. It is home to most of the world’s poor, with an estimated 70 per cent of the world’s poor living in Africa, up from 50 per cent five years ago, and expected to rise to 80 per cent by 2023. Instead of struggling to end poverty by 2030, in fulfillment of the targets of the Sustainable Development Goals (SDGs), Africa currently adds poor people. Therefore, tackling poverty in Sub- Saharan Africa (SSA) is one of the pressing development challenges of our time because the remaining pockets of extreme poverty seem to involve a complex interplay of social, political and economic factors. There is also a significant correlation between poverty and inequality, where greater inequality is associated with higher poverty incidence and depth. On the other hand, evidence also shows that effective social protection schemes and policies along with government spending on key services like education, health and social protection for the vulnerable can be a way out of poverty.

Apart from the colonial mishap, Africa has also suffered more recently from ideological influences that shaped her economic fabric in the post-independence time. The most prominent the neoliberal and free-market economy ideology, which also closely overlaps with the classical economic philosophy of laissez-faire, spread over the last three to four decades. Neoliberalism asserts that economic policies that promote free-market capitalism, little government regulation, reduction in government spending, privatisation, price deregulation, reduced size of government and flexible labour markets, would usher Africa into the economic dreamland. As such, African governments adopted policies of austerity and other attempts to reduce budget deficits, though usually maintaining bloated governments. These mostly involved cutting government spending on social programmes, such as education and health. One of the main arguments pushed for advancing the neoliberal economic policies in Africa was that it would help create wealth or, capital and the benefits would then ‘trickle down’ to all. As it has become clear now that neoliberal policies tend to increase inequality, which is harmful to long-term economic growth prospects and benefits. In the words of Pope Francis, the assumption that the full glass would eventually overflow has proved elusive as the glass magically gets bigger and nothing ever flows out of it.

The failure of neo-liberalism in Africa is manifested in rising levels of unemployment, poor quality of education and health services, and the increasing levels of poverty and inequality. The use of the ideology of the free market in health and education services has ignored the externalities of these sectors, especially in terms of other non-monetary benefits. It has led to widening inequality and under-provision of such services that are important for long-term development. There is also a widening inequality in both wealth and income. The richest Africans get ever richer, with seven of the most unequal countries in the world found in Africa. The richest 0.0001 per cent own 40 per cent of the wealth of the entire continent and Africa’s three richest billionaires have more wealth than the bottom 50 per cent of the continent’s population, approximately 650 million people. Today in Africa, there are 20 billionaires living alongside 413 million people in extreme poverty, indicated by studies in Kenya and Zambia. Similar studies in other African studies would reveal the same, as South Africa is home to five of these billionaires, as well as 50,000 millionaires. Neoliberal promises of labour mobility have only benefited skilled workers who command higher wages to move around freely, while low-skilled workers are unlikely to move and continue to see stagnant wages.

With neo-liberalism came also the influence of big firms or multilateral corporations (MNCs) that have straddled across boundaries. These have been associated with limiting wage growth; paying the local labour poorly. With their size and modus operandi, many multinational enterprises undermine the sovereignty of nation-states and tend to bring down economies overnight. Nearly all the major multinational corporations are American, Japanese or Western European. Their activities have partially destroyed the local entrepreneurship drive, which has an important effect on development.

To compound Africa’s problems, the global pandemic of the Coronavirus has been pushing more people, estimated to be about 30 million, into poverty. This is increasing inequality and dimming the prospects of achieving the Sustainable Development Goals (SDGs) and Agenda 2063.

One of the ways in which African governments have tried to cope with poverty is through local, bilateral and multilateral borrowing. This has led to increasing debt problems for the African countries, many of which just benefited from the heavily indebted poor countries (HIPC) debt relief initiative of 1996. The sub-Saharan African debt problem is re-emerging now in more worrying ways. Africa’s current combined debts amount to about US$ 583 billion, with average public debt increasing from 40-59 per cent between 2010-2018, after reaching a low of 32 per cent in 2008 and making it the fastest-growing debt accumulating continent. About US$140 billion (about 20 per cent) of this debt is owed to China and its biggest companies like the China Exim Bank, making China be Africa’s leading bilateral creditor. The COVID-19 pandemic also drove Sub-Saharan Africa’s debts even higher, as the economic growth declined due to the pandemic. The COVID-19 pandemic also increased costs for health services and more effects are expected to extend into the food security crisis. Debt servicing deprives African of the much-needed revenues.

An assessment by the Jesuit Hakimani Centre in Kenya and Jesuit Centre for Theological Reflection in Zambia has seen a link between taxation, and how to address the problems of poverty and inequality in Africa. Taxes are a secure and predictable source of revenue for countries. Taxes and good tax policies can address inequality by helping to redistribute resources through contributing to the provision of good public services of education and health, establishment of social safety nets, creating decent jobs and protecting the rights of workers to fair wages and conditions of work.

Peering into the tax systems of many African countries reveals similar shocking realities. Administrative, legal and policy loopholes continue to result in revenue leakages. Administratively, institutions responsible for taxation in Africa are understaffed and inadequately equipped, making it difficult for them to do a good job in revenue mobilisation. Legal and policy gaps enable MNCs to earn both legal and illicit profits and repatriate the profits or take them to be deposited in offshore accounts. This has caused a revenue haemorrhage of $50 to $80 billion annually for Africa, with a cumulative total of about $1.2 to $1.4 trillion from 1980-2009, with 60-65 per cent of these attributable to commercial transactions by the MNCs. These so-called ‘illicit financial flows’ amount to around 6.1 per cent of the continent's entire gross domestic product (GDP) - or three times what Africa receives in aid. Multinational corporations (MNCs) ‘steal’ this by pretending to generate their wealth in tax havens. The more powerful foreign countries, working in coalition with the MNCs, continue to lobby for economic models that advocate for tax exemptions for foreign investors. Such exemptions and other incentives, plus the consequences of tax avoidance and tax evasion are a matter of life and death for many developing African countries. Generous tax exemptions or tax holidays granted to MNCs operating in Sub-Saharan African countries between 1980 and 2005, enabled the MNCs to extract huge profits estimated at $46 billion in 2012, much greater than aid to the continent. The exemptions and other incentives granted to big businesses, plus the consequences of tax avoidance and tax evasion in many developing African countries deprive them of the much-needed resources to address poverty and inequality.

At home, limited or no taxation of private wealth and property, plus acts of tax evasion and avoidance by Africa’s rich individuals contributes to more revenue loss. Kenya and South Africa are among the countries with the highest numbers of ultra-rich individuals, many of who do not appropriately declare their net worth to the tax authority. This is estimated to cost South Africa alone $10.9 billion in uncollected tax revenue.

The ordinary citizens know little about taxation, as the issues of taxation are explained in complex terms and treated in high government circles. Many citizens are ignorant or cynical about their rights to resources, and the ability to change the status quo. They consider taxes as a ‘debt’ they pay to the government, other than viewing these revenues as their contribution for development and service delivery that must be adequately accounted for. Thus, they are less involved in efforts to formulate policies for improved domestic resource mobilisation, allocation and use. Even the most enlightened citizens who pay taxes do not feel obliged to participate in activities to influence tax and expenditure policy formulation, planning, resource allocation and monitoring the use and benefits of public resources. Such attitudes provide a leeway for unscrupulous government officials to embezzle public funds or invest in priorities that do not address the urgent challenges of poverty and inequality. The need for civic education and raising awareness for behaviour change is urgent.

The problem of taxation in the African countries can be summed up as abused incentives and exemptions, double taxation agreements (DTAs), corporate social responsibility (CSR) and not expanding the tax base appropriately to tax property and wealth, and poor benefits negotiation in the extractive industry. These factors combine with the limited tax administration capacity and little cooperation for policy and administrative harmony among African tax administrations, to deprive the African countries and their citizens of the much-needed revenue. It is therefore imperative for countries in Africa to promote efficient and fair tax systems. This requires the right tax policies and better regulations that broaden the tax base, provide fewer tax incentives and close the possible loopholes that cause revenue leakage.

 

The Role of the Church

The circumstances above call for reforms if the tax system is to be a means to improve revenue mobilisation and address the problems of poverty and inequality. There have always been reforms and policy changes, but these do not seem to have the intended benefits. What is missing in these reforms? The Catholic Social Teaching shines light on that fact that these reforms do not put the human person at the centre. Instead of being the originator of the policies of taxation, revenue allocation and use, the human person is only a statistic.

As a framework of analysis, the Catholic Social Teaching is built on a threefold cornerstone of human dignity, solidarity and subsidiarity. This should guide governments, institutions and private organisations to shape a future consonant with the dignity of every person. Of the three fundamental principles again, the greatest, the Church insists, is that of human dignity. Human dignity also means a capacity to transcend one's own materiality and seek truth. It is indispensable for the building of a society directed to human fulfillment. Respect for essential elements of human dignity is a condition for the moral legitimacy of every social and legal norm. In short, it means, such decisions, policies, and laws for resource mobilisation and use must focus on the good of each and every human person. Pope Francis emphasizes this in Fratelli Tutti (#107):

Every human being has the right to live with dignity and to develop integrally; this fundamental right cannot be denied by any country. People have this … not on circumstances but on the intrinsic worth of their being. Unless this basic principle is upheld, there will be no future either for fraternity or for the survival of humanity.

However, Pope Francis regrets that there is “immorality and the mockery of ethics, goodness, faith and honesty”. He sees the foundations of social life are corroded, resulting into conflicting interests”. He further notes that “what is handed down are selfishness, violence, corruption in its various forms, indifference and, ultimately, a life closed to transcendence and entrenched in individual interests”. He stresses the need for us to “return to promoting the good, for ourselves and for the whole human family, and thus advance together towards an authentic and integral growth”.

Caution must also be taken because over-emphasising the human person can be detrimental to other forms of creation. The common good must holistically consider all creation. This is the core of the message that Pope Francis made in his appeal in Laudato Si', which raises concern about the “human roots of the ecological crisis” based on “modern anthropocentrism” with detrimental effects on the earth. The earth, the Pope says, “is a shared inheritance, whose fruits are meant to benefit everyone”. This is further stressed by the Catholic Social Teaching on the “Common destination of Goods”, which would mean, caring for our shared inheritance, even when we want to live off it, extracting its resources for generating wealth.

The Catholic Social Teaching is considered the Church’s best-guarded secret. The growing challenges of poverty and inequality, and the increasing needs of revenue give the Church a new task; to advocate for better governance of resources, getting from fellow humans and Mother Earth what is needed. Are these, therefore, not enough reasons for the Church to get involved in advocating for tax and debt justice? The Church may have to unpack the secrets of the Catholic Social Teaching, to advocate… This calls for more elaboration in the coming days.