Tax avoidance: the problems

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Tax avoidance: the problems

Some of the worst effects of not paying tax are in the Global South. Stephanie Boyd reports from Peru.


Cleaning up an oil spill, Nueva Alianza, Peru. © Barbara Fraser

A worker from the state oil company in Peru tries many times to put a piece of wood into a big hole in the pipeline. But this does not work. Oil rushes out of the oil. There are many dead fish in the oil around him.

The oil spills stopped in August, but more than 4,000 barrels of oil had leaked into a river that flows into the Peruvian Amazon – a fifth of the world’s fresh water comes from the Amazon. Many indigenous villages had no drinking water and children had rashes.

Leonardo Tello (director of a local radio station)wrote a report and showed the sad photos. He is angry and very sad. In the last 19 years, there have been 190 (reported) oil spills, and most of these affect the Amazon rainforest.

Peru’s economy is growing very quickly. They export a lot of natural resources. But the country never has enough money for environmental disasters or checking these. So pipelines get old and leak. And the drinking water of the indigenous communities becomes poisonous for them and for the fish.

Where is the public money? There is none because of corruption, weak tax laws and offshore banks. Peru’s Institute of Legal Defense (IDL) found more than 100 Peruvian citizens and companies were clients of Mossack Fonseca’s ‘Panama Papers’. This group of very rich people, television stars, politicians and families with beer, football and sugar companies have been rich for a long time, since the Spanish arrived in Peru. , So the richest 10 per cent of people in Peru pay about five per cent of Peru’s taxes. In Britain, Italy and Switzerland, the richest 10 per cent pay more than 25 per cent. Even in the United States, the top 10 pay 14.2 per cent. Police raided the offices of Mossack Fonseca in Lima in April, but they have not charged the rich people yet. Secrecy in banking is legal in Peru. And there is no need to register foreign bank accounts or companies.

India has been better at getting the people who don’t pay tax. They had a good plan after the Panama Papers showed that there are about 500 Indians with money in offshore accounts. They gave people 4 months to pay a tax and fine and said they would not prosecute them. By the end of September more than 64,000 people had done this. The government thinks they will get $4.5 billion in tax in total.

But this money is only part of the money that should be paid in tax in India. There is also money in Swiss banks and other tax safe places. This could be about $500 billion. India caught the small tax avoiders, but the big ones are still free.

In Peru the companies that earn most money – oil, minerals and gas exporters – can avoid paying tax legally. José de Echave, who was vice-minister of the environment, says Peru gives money to the billion-dollar mining industry. When companies buy goods and services for their businesses they get a tax credit, and because they export their products, they don’t pay any tax on what they produce. They can use their tax credits to get money back from the government, especially when prices are low.

Last year Peru’s tax office gave more money back to mining companies than the companies paid in taxes. De Echave thinks 2016 won’t be much better.

Antamina, one of the world’s largest copper-zinc mines, is in the very poor mountain area in Peru. Four very rich businesses own the company: BHP Billiton, Glencore, Teck and Mitsubishi. But in the first four years of production, the mine didn’t pay any taxes on the money they made. And this is in a region that has very bad basic public services eg. healthcare and education.

De Echave thinks that Peru, like many other countries in the Global South, believes they need weak tax and environment laws so that they can attract companies. But there are not many rich geological areas left in the world. He says the mining industry should pay taxes to help with environmental and social problems.

Peru does not have good public services for most people eg. good schools, hospitals and public transport. The rich people (who avoid tax) pay for private services.

But after the Panama Papers scandal, the people said nothing. There were no protests in the streets. Luisa Garcia, an IDL investigator, says this is because the media did not show a link between avoiding tax and the daily problems of Peruvians. Her investigation showed that there are two separate groups: very rich people who don’t pay tax; and most of the people who are poor and cannot even get good jobs. More than 70 per cent of Peruvian workers do not have formal jobs: they don’t pay taxes, but they also don’t get benefits.

And there is so much corruption, so people do not care if people pay tax.

I asked a street seller in the northern Amazon about her taxes. She was selling a lot of fish and bananas at a busy port. But she pays no tax. Why? She has no money to go to the big city to register. She doesn’t know how to use a computer. She might have to pay fines.

She stares at me. ‘The government doesn’t give us anything. Why should we pay taxes? They just steal our money.’ I’ve heard this so often in my 19 years working as a human rights journalist: ‘The government doesn’t care. They don’t represent us.’

Many South Americans only see what the state does when police fight against social protest and arrest or kill people in their family. ‘Why should we pay for this?’ Good question.

I ate the contaminated fish, and I remembered the schoolteacher who did not pay his taxes in the US because he didn’t want to support the country that became powerful because of slavery, killing indigenous people and invading Mexico.

This was Henry David Thoreau in 1894, who talked about a ‘peaceable revolution’. He went to prison for a night because he didn’t pay tax. This inspired him to write the famous ‘Civil Disobedience’, which inspired Mahatma Gandhi and Nelson Mandela.

Maybe my fish seller and the millions of other people with low-paid informal jobs in the Global South are part of Thoreau’s revolution. Maybe they are only trying to survive. But there are many busy markets in the Global South. Maybe these show that tax collecting is not going well. If people don’t see any benefits for them from paying taxes, they will not want to pay or force rich people or companies to pay. Governments need to give people good public services, then there will be more chance that people will start paying tax.

Stephanie Boyd is a Canadian filmmaker and journalist living in Peru. Her most recent film, Karuara, People of the River, is about the Amazon.


(This article has been simplified so the words, text structure and quotes may have changed).