By: Benjamin Sims

There have been several interesting pieces of information in the media recently that have highlighted the importance of international tax revenue in terms of development. We have seen documentaries like the recent Four Corners on East Timor, and also the leak from Papua New Guinea Mine Watch on how mining companies are avoiding tax in PNG.

The Timor documentary and example of PNG tax avoidance demonstrate that for Melanesia the amounts international companies are not paying in tax might eclipse even the aid money they receive. The PNG leak, for example, explains how a South African mining company can get away with paying a tax of just three per cent rather than the official rate of 30 per cent.

This is not a new issue. An ex-government official from PNG recounts the following story:

In the nineties, PNG officials checked the Stock Market declaration of Rimbunan Hijau. At the time, the largest logging company in PNG. This company … never [paid] income tax in 20 years. More shockingly, their stock market record showed that they made USD 120 million profit in the previous year. After issuing Rimbunan Hijau with a tax bill, within 24 hours the Ambassador of Malaysia came to the tax office to declare the information provided to the Malaysia stock exchange was incorrect. The tax owed was never received.

These stories raise an important question: Instead of giving aid, why don’t countries like the US and Australia make sure their companies pay the correct taxes to our nations?

What is true of mining and petroleum is also true of other natural resources, such as fish. PiPP has long supported the ideas being developed in the north Pacific about getting a greater share of the revenue from tuna, a key source of revenue for Micronesian countries.

As with mining, tuna fishing is capital intensive, and Pacific countries do not have the advanced fleets and facilities required to efficiently fish their huge ocean territories. Again, the income that the Pacific could derive from fairer fishing arrangements may even eclipse  donor assistance and thus have the potential to provide long-term funds for development.

The key message seems to be that the major countries will not necessarily act in the interests of the Pacific if one of their own is avoiding tax. Worse still, the region cannot always rely on donors to fill the budget gap, due to geo-political maneuvering.

It is clear that countries in the region need independent specialist help in terms of managing their natural resources, but it is hard to find people who do not have vested interests in this interconnected world.

These stories also highlight the importance of countries signing up to initiatives like the Extractive Industries Transparency Initiative (EITI). Whilst Timor and Solomon Islands have signed on, PNG is still considering it. EITI aims to make resource revenues more transparent, improving governance and reducing corruption, but more assistance is required for ensuring foreign resource extractors are compliant.

If developed countries really want to help small islands in the Pacific, then one step would be to get bodies like the Australian Tax Office (ATO) to hand over vital information they have on the revenue made by their companies in our territory – or better still help ensure that international companies pay the taxes they should do.

Contrast this with the stance of bodies like the ATO, which are willing to lobby for Vanuatu to be grey-listed by the Organisation for Economic Co-operation and Development (OECD) for not helping collect tax revenue they feel is due to them, but are not as willing to assist Melanesian states in improving domestic tax compliance.

This apparent double standard does little to alleviate the notion that aid is simply a token gesture used by the major powers to gain a larger share of developing country resources. Even though those working in development know that this is arguable at best, it is easy to see how such conclusions can be formed.

This entry was posted on Wednesday, October 17th, 2012 at 6:00 am and is filed under Pacific Voices. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.