Earlier this week the publication of stories, implicating several world leaders – past and present, in secreting millions of dollars abroad brought into the full public glare the issue of off shore tax havens and how the rich and powerful are playing by different rules than the rest of us.
The “Panama Papers” a treasure trove of documents, 11.5 million pages deep, that were leaked from a Panamanian law firm, Mossack Fonseca, which evidently has distinguished itself in secreting money away from the prying eyes of the public or the invasive fingers of governments.
Imagine you are a big fish who has “eaten” a big frog or multinational company that just thinks they should not pay all the tax due to them or an independent consultant, not only making tonnes of cash on the side but who is keen not to make the sources of those incomes known. You get in touch with a lawyer – in this case Mossack Fonseca and the create a shell company domiciled in any number of tax havens around the world through which you can receive payment or pay out of. In this way you can become an employee of your shell company and receive payments in amounts that will not raise eyebrows or buy assets as a foreign company.
So for instance I got paid $100,000 (I wish) for consultancy work I did in Switzerland, I would ask my employers to pay into my offshore account in the Bahamas, which account belongs to my company SmartBush Inc, which every so often may send me a check or gives me free use of its credit card or may buy property in Uganda or come in as an investor to buy privatised companies for a song.
URA will not be the wiser as to my new income and I can enrich myself to no end tax free.
On the other hand if my employers had sent it straight to my account here URA may claim as much 40 percent of my sh350m pay check or sh140m!!!
Often times these shell companies are just a post office box on a sunny island in the Caribbean, administered by a law firm which makes sure it meets all statutory requirements in those jurisdictions.
The Tax havens have gained notoriety in recent years as revelations of how much money they are turning over as a proportion of their general economies are revealed.
Uganda only came up in the case of Heritage Oil & Gas which tried to dodge a capital gains tax on the sale of its rights to concessions in western Uganda. Domiciled in the Bermuda they tried to shift to Mauritius – another tax haven, which has a double taxation treaty with Uganda.
A double taxation treaty shelters companies from suffering a double taxation on their earnings in two different countries.
"It’s not to say that our big fish are squeaky clean, it’s just that the leak has been in only one firm. There are hundreds maybe even thousands of firms around the world offering these services...
The supporters of the tax havens argue that they have legitimate uses in the protecting companies from bad regimes or as above prevent businesses from being taxed twice or several other arguments, which while they have a sound legal basis, they cannot stand up to higher moral or ethical scrutiny.
Recent campaigns have fingered these tax havens as one of the major reasons why wealth inequality is rising across the world. While us mere mortals pay taxes on our incomes the very rich pay much less in tax as a proportion of their income to the authorities, with the surplus used to enrich themselves further.
There is very little people can do about it as it seems everybody, who is anybody is in on the action.
However western governments are beginning to take the scourge seriously as they realise how much in revenue they lose annually to these tax blackholes, affecting their ability to provide services for their people.
And finally about the Panama Papers how come the prominent stories released about Russian president Vladmir Putin and African despots?