Thursday, July 2, 2020

Socio-economic injustice disguised as COVID-19 philanthropy

On the face of it, the parade of deep-pocketed elites holding one end of a mock cheque and posing for pictures with Vice President Slumber Tsogwane on the grounds of the Office of the President are doing society a huge favour at a time of great financial need. However, if that was indeed the case, no less a person than the Permanent Secretary in the Ministry of Employment, Labour Productivity and Skills Development, Kabelo Ebineng, would not have publicly lamented that while some of the donors have shelled out millions of pula to the COVID-199 Relief Fund, they “have not paid their employees amounts as little as P3000. That is wrong.”

It is also common knowledge that some companies that do business in Botswana are registered in tax havens. What these companies do is register their headquarters in a low-corporation tax jurisdiction, then book their profits there rather than in Botswana where they actually make their sales. This is done with the intent of exploiting secretive offshore tax regimes. This is a global phenomenon and in the United States, companies such as Apple, Microsoft, Google and Facebook have been doing this in order to lower their global corporation tax bills. Moody’s Investors Service estimated that at the end of 2016, giant US technology companies alone had $1.84 trillion of cash held offshore.

French economist, Gabriel Zucman, estimates that around $7.6 trillion, or 8 per cent of global wealth, is held offshore. The Tax Justice Network campaign group estimates that corporate tax avoidance costs governments $500bn a year, while personal tax avoidance costs $200bn a year.Trusts have proved a useful vehicle for tax avoidance. People who keep their assets in a trust in an offshore tax haven can legally avoid paying capital gains in the country in which they are resident. When he was Leader of the Opposition in the last parliament, Duma Boko addressed this issue, telling parliament how the rich use trusts to facilitate legal tax avoidance. The Umbrella for Democratic Change president said that one of the benefits of registering property under a trust is that in the event that one dies, and their property has to be transferred to their beneficiaries, the normal applicable transfer duties and other payments will not take effect.

“If you have a trust, all that would need to happen is, now that the beneficiary is no more, there would have to be a replacement of the beneficiary, the property is still owned, held and controlled by the trust, so there is no transfer,” said Boko, who cited the example of De Beers’ founder, Harry Oppenheimer, whom he said had only R53 000 in his personal bank account upon death when he was actually the richest person in South Africa at the time.

“So there is no transfer duty, there are no taxes payable.”

One of the companies that has made a huge in-kind donation to the COVID-19 Relief Fund is, for the most obvious reasons, registered in the British Virgin Islands, a low-corporation tax jurisdiction in the Caribbean Islands. This company, whose operations are spread out across the country and region, books its profits in the British Virgin Islands rather than in Botswana where it actually does multi-million pula business. The company and its directors are obviously doing this to avoid, if not evade, tax. For as long as it has done business in Botswana, this company has continually frustrated government effort to economically empower citizens: it has tricked its way into businesses reserved for citizens, it overworks and underpays its employees and has been rumoured to be a bit too close to some senior ruling-party officials who oversee its operations.

The latter enables this company to both capture the political process and rig public policy in its favour.COVID-19 pandemic has given this company an opportunity to present itself as a force for good, an irony that a brilliant US writer has found the right set of words to describe. In describing what he terms the “charade of elite philanthropy”, Anand Giridharadas compares rich donors to “arsonists showing up at the site of a burning building and claiming to be the most capable fire fighters.” The more substantive explanation is that these people are the direct of cause of socio-economic problems in the first instance. Indeed, if one were to understand this assertion within the context of the Botswana situation, most of the donors on the OP grounds pay their employees as insecurely and as little as possible and have a chin-high pile of pending unfair-labour practice cases at the Department of Labour and Social Security district office.

This has led to social problems that Botswana wouldn’t otherwise have if the aggrieved workers had been paid a fair day’s wages. To quote Giridharadas, elite philanthropy enables plutocrats to then step on the scene and present themselves as the solution to a situation that they caused in the first instance.“Our societies are being defrauded by entrepreneurs who steal the language of revolution and social solidarity to undermine social solidarity,” says the US writer, buttressing that point by pointing out that while Facebook founder, Mark Zuckerberg, is forever “talking about community, community”, he has actually globalised technology that is destroying communities.

While he lives half way across the world, Giridharadas provides an insight that helps us understand the OP spectacle, why plutocrats prefer philanthropy over taxation and why they donate millions of pula to the COVID-19 Relief Fund but evade taxes that total half the amount they donated. “It has to do with credit and control,” Giridharadas tells a Swiss journalist in an interview.  “When you pay your taxes, you don’t get credit because you are just complying with the law. You don’t get a sticker, you don’t get a poster, the mayor is not gonna say your name in public, you don’t get a handshake, you don’t get a photograph – you just pay your taxes. Second of all, you don’t get control. When you pay your taxes, you don’t say ‘I want this to go to social insurance’, ‘I want this to go to the bus system’. No, you just pay your taxes.”

Conversely, philanthropy gives donors credit and control: “Your name goes on the building, everybody knows you did it, it helps your reputation. If your pharmaceutical company killed people, if your chemical company poisoned someone’s river, it helps your reputation because that was bad and now you doing something good and you also get control. You get to decide, let’s give money to that school, not this school; let’s fund this programme, not that programme. Credit and control are things that rich people like and I find that they are willing to give more to philanthropy than they will be happy paying taxes.”

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Sunday Standard June 28 – 4 July

Digital copy of Sunday Standard issue of June 28 - 4 July, 2020.