LILONGWE ( Martha Khonje, ActiondAid) – Malawi, my country, is among the poorest in the world. Gross domestic product per person is just $255 (£175) a year. Less than a dollar a day, it is barely enough to live on. Yet an outdated and unfair tax deal with the UK (pdf), signed in 1955, has tied the hands of the Malawian government and makes it possible for UK companies operating here to pay little or no corporate tax.
The country’s crumbling public services desperately need investment. The healthcare system is in crisis. Countrywide, there is only one doctor for every 40,000 people, and Malawi has one of the world’s highest rates of child mortality, with one in 20 children dying before the age of five.
Chisomo Bullah, 22, a youth campaigner, knows the cost of poor quality healthcare. She was in a serious car accident, which killed one of her friends. Bullah survived, but was knocked unconscious and broke her arm in two places.
“I went to the hospital but it took two days for me to get treated. They didn’t have electricity, and I even had to use my own money to buy medicine because the hospital didn’t have medicine. I feel very bad because it is we, the people living in poverty, that are paying tax yet companies are making billions and they are not.”
Last year, 339 graduate nurses were asked to report to their new jobs across Malawi. Two weeks later they received letters cancelling their deployments due to a lack of funding.
Harriet Bwanali, executive director of the National Organisation of Nurses and Midwives of Malawi, is outraged that big companies are not paying their fair share.
“One nurse may be looking after 80 patients; they cannot manage to provide the quality care that is required because their workload is just too heavy. If big companies divert tax, they should know that they are killing people because that money could have been used in so many ways: buying drugs, buying supplies, paying the nurses, the doctors.”
While aggressive tax avoidance also costs developed countries, like the UK, the effects of this loss of revenue are starker in developing countries, where roughly$200bn a year is lost to corporate tax avoidance (pdf).
Corruption is a challenge in many developing countries, yet it is not an excuse for companies not paying tax. Tax problems and corruption should be tackled together to improve governance, public services and lift the most vulnerable people out of poverty. We at ActionAid work hard on these issues too.
The tax treaty between the UK and Malawi is more than 60 years old. It was signed when Malawi was under colonial rule. It is so outdated that it was signed by the British governor on behalf of Southern Rhodesia, Northern Rhodesia and Nyasaland.
Companies from the UK are the third largest investor in Malawi ($157m in 2010) yet, as a result of this treaty, they can get away with paying little or no corporate tax here.
The treaty is so outdated that not only does it not deal with taxing digital goods and services, it does not even cover taxing TVs.
More significantly, it prevents Malawi from collecting withholding tax – taxes deducted at source. British multinationals can therefore move money out of Malawi freely – via interest or management fee payments, dividends or royalties – without paying tax in Malawi on that money.
And it’s not just our treaty with the UK that is a problem. The Australian mining company Paladin used the Malawi-Netherlands treaty to avoid paying $43m of taxes.
The treaty is making it impossible for Malawi’s government to collect a fair amount of taxes from UK companies operating here. A previous attempt to renegotiate the treaty stalled.
ActionAid is calling on the UK government to put the fight against poverty at the heart of its tax policy and negotiate a new, more equitable treaty that ensures UK companies pay a fair amount of tax in Malawi.
A fairer tax policy will benefit everyone, and especially Malawian women: we are always fighting for our space, we are always fighting for whatever has to be done, because of poverty, illiteracy and lack of healthcare. My future Malawi is one where women feel supported and everyone, including the big companies, pays their fair share.
- Martha Khonje is country director forActionAid Malawi