I’m indeed very honoured and pleased to be able to exchange some ideas and thoughts on the topic today – ‘The Taxation and Utilisation of the Economy and the Taxation of ODA Funded Projects’.
Talking from the perspective of someone who is from what some people call developing countries or developing economies, you find out that the similarities are actually more than our differences. What you discuss when you discuss with experts on taxation, we are discussing with professors and with those who have more knowledge than some us to exchange certain ideas.
Digital tax initiatives So, I am going to give a story line. First of all I’m going to go through the overview of what I am going to try to compress and condense within ten to fifteen minutes. I am going to talk about the digital tax initiatives, the Nigerian digital economy, tax administration challenges and, of course, taxation of Official Development Assistance – Funded Projects.
In going through this overview, I am going to highlight a few issues.
First of all, I’d like to speak a little bit about Africa. Africa is said to have 30% of the world’s natural resources but still remains the poorest continent in the world. Today, I am going to be addressing you partly as an economist, partly as a psychologist, a politician, business executive and then a tax administrator.
To have an effective tax system on a developing economy you need to be a little bit of all of the above. The President of Ghana is what I would call an ambassador for taxation. He has constantly spoken about the need for effective taxation across not only Ghana, but also Africa. We have found out over a period of time that the only way to ensure sustainable economic and social development is through taxation.
Africa’s over-reliance on natural resources Let me take you down memory lane.
In the 1980s when we were students of economics, they told us that, depending on the economies of scale, that is where you should be in terms of your costs of production. A lot of African countries found in commercial quantities natural resources from oil to gold and tin – what you could think of you could find it on the African continent.
So while we were busy selling the natural resources, the other developed countries of the world were actually reforming their tax process and we found it quite easy to drill a hole and out comes oil.
In the particular situation of Nigeria in the 1970s, we found out that what we generated in oil was more than sufficient to fund the government activities at that point in time.
Our Head of State at the time said that money was not our problem, our problem was how to spend it. And a lot of African countries fell into the same situation until we found out that we do not control the prices of these products. We exported crude oil, we exported unrefined gold, and we exported everything in a crude form. By the time it came to market we found out that the price was determined somewhere else.
Based on my little experience that I was fortunate to have, after my degree in economics, I was an intern for one of the top five hundred companies in New York. This company happened to deal in female jewellery and accessories. To my surprise, I found out that the actual gold content and the other minerals used to create this jewelry only accounted for 20% of the sale value of the products.
I found out that regardless of how much we put in in terms of raw materials was very minimal in the final product, and of course the profits of that product. I also happened to have the advantage of being sent to an advertising company. I asked the person who I was working with, “Why should I go and work with an advertising company?”
He said, “You will learn something.” I never forgot that. They took me through a process they called AIDA (Attention, Interest, Demand and Action) whose job was to make sure that we can sell our products. If they came up with a campaign and we cannot sell our products that meant we’ve added no value.
I was extremely delighted when the Secretary-General said that the United Nations has taken a position that those involved in consumption played a very vital role in the cycle of business. When we are looking at where value is added, we forget the regions where the consumption takes place. Unfortunately, most developing countries are
more on the end side, the consumption side than the manufacturing side or even the innovation stage.
And that all boils down to the story of the economies of scale. If you look at the major items that are being produced and sold, 90% of them are sold in developing economies. They are invented in a developed economy and sometimes they are manufactured in a developing economy, then shipped back to the developed economy for final processing and then sold to the rest of us. Of course, where you do not make any profit, you do not get any taxes.
In terms of taxing approaches, a lot of countries have come up with individual strategies to ensure that they get some tax revenue from the digital economy. For example, India applies a six per cent equalisation levy for specified services provided by non-residents.
The Argentine government requires a foreign supplier to register for VAT in Argentina. The city of Buenos Aires applies a levy through a Withholding Tax mechanism whereby debit and credit card companies are
required to withhold three per cent of the net amount of any payment remitted to them.
As countries continue to search out appropriate policies to ensure that they are not left out of this game of tax revenue, you will find out that the developed countries treat it a bit differently. If we look at the issue of Apple and Ireland, the other members of the European Union (EU) found out that Ireland, in giving certain tax
benefits, had an undue advantage for business and the EU insisted that Apple should pay EUR13 billion as tax. Now the question is: Who looks after the tax revenue from developing countries or economies?
I am glad to say that from my short time at the UN, I can see that the UN not only has the interest of developing economies at heart, but also ensures that there is a free and fair playing ground when it comes to issue of tax revenue.