draining development.pdf - Khazar University

470 Draining Development?the fact that companies paying taxes in poor countries complain they arerequired to pay at high rates. While some companies are exempt, othersface the full brunt of the appetites of governments for revenue. In Sub-Saharan Africa between 1980 and 2005, the total take from corporateincome taxes in all sectors, except oil, gas, and mining, held up as a proportionof GDP despite the spread of tax holidays (Keen and Mansour2010). It seems unlikely that the ratio of corporate profits to GDP couldhave expanded sufficiently to account for this stability. Some, at least,must have come from high levels of extraction from those companies inthe tax net. Other evidence points in the same direction: globally, corporateincome tax rates are higher in poorer countries than in richer countries,while corporate income taxes comprise a lower proportion of GDP(table 14.1). 15 The tax efforts made by revenue collection agencies inpoorer countries are not inferior to those of their counterparts in highincomecountries (IMF 2011). 16 Someone is paying taxes in poor countries.All too often, the taxpayers are the legitimate, formal sector companiesthat do not engage in large-scale transfer mispricing or lack thepolitical clout to get tax exemptions. This highly uneven playing fielddoes not make for a good investment climate. Illicit capital flows alone arenot responsible, but they exacerbate the existing distortions.Tax havensTax havens, in particular, tend to be jurisdictions rather than countries.Sometimes, most classically in the case of Switzerland, the distinction isunnecessary. However, many tax havens comprise territories withinlarger political structures that enjoy a special status and make their ownlaws, including Channel Islands and other dependencies of the UnitedKingdom and the state of New Jersey within the United States (Palan,Murphy, and Chavagneux 2010). As explained in the section on categoriesof jurisdictions, the category includes both basic tax havens thatemploy few people and exist simply to facilitate secrecy, tax evasion, andmoney laundering and offshore financial centers that provide a widerrange of financial services, while still performing the basic tax havenfunctions. Both offer relative security for financial assets. Basic taxhavens typically offer greater opportunities for secrecy, while offshorefinancial centers are better points from which to integrate illicit assets inmore visible, recorded activities.