Yesterday, July 23rd, one of the leading dailies in Uganda, run a screaming headline, “Leaked papers reveal Bitature offshore links.”
Now, Patrick Bitature, is one of Uganda’s leading businessmen, founder and CEO of Simba Group- a conglomerate of East African companies spanning telecommunications, real estate, power generation, agro-business, oil and gas, tourism and social enterprise, so such a headline is bound to attract every reader’s attention.
In the newspaper story, it was alleged that Electromaxx, an energy firm in which Mr. Bitature, is a major shareholder, had “benefited from an energy investment structured in Mauritius, which according to tax analysts, smacked of “a deliberate aggressive tax planning” to benefit from the Double Taxation Agreement (DTA) between the Indian Ocean island nation and Uganda.”
In an early anti-climax, the authors went on to mention in their story that: “There is nothing criminal in a business person or entity exploring tax payment in a jurisdiction where it is least, technically called tax avoidance.”
Having sucked out the legal juice out of their own, story, they went for the moralist angle, and regurgitated a March 16, 2015 report, by Oxfam International, a global NGO which argued that tax avoidance, while legal, had an indirect impact of widening income inequality as “wealthy individuals and multinational corporations pay the least tax by establishing offshore firms in tax havens while the poor choke on taxes in countries of citizenship.”
The story itself, is draw from what has now come to be known as the Mauritius Leaks- a hoard of about 200,000 confidential client documents leaked from the Mauritius office of the Bermuda-based offshore law firm Conyers Dill & Pearman that is said to paint a little bit more detail on businesses from all over the world that hired the law firm to help them offshore some or all of their operations and processes in Mauritius.
The leaks are part of an investigation by International Consortium of Investigative Journalists (ICIJ) and 54 journalists from 18 countries, including Uganda.
The screaming headline aside, that at a first reading, suggests some mega corporate scandal, on closer reading, reveals an author who has fallen hook line and sinker for the syndicated NGO world view, albeit imbalanced, that offshoring, solely exists for purposes of tax avoidance.
Speaking of moralism, I would have expected so bit of “fixing the log in one’s eye, before going for the speck in the neighbor’s.”
For those who may not know, the Monitor Publications, which publishes the newspaper in question, was at 31st December 2018, 83.3% owned by Nation Media Group (NMG), itself 44.66% owned by Aga Khan Fund for Economic Development, S.A (AKFED) a company incorporated in Switzerland the 4th biggest tax haven, after Bermuda, Cayman Islands and Netherlands on Oxfam’s 2015 list of 15 biggest corporate tax havens.
Mauritius is No.14 on the same list.
AKFED which is wholly owned by The Aga Khan Development Network (AKDN), also registered in Switzerland, operates a network of more than 90 separate project companies all over the world, with revenues of USD4.3 billion in 2017!
In Uganda, other than Monitor Publications Ltd, AKFED either, wholly or partially owns companies such as Bujagali Energy Ltd, Kampala Pharmaceuticals Industries Ltd, Leather Industries of Uganda Ltd, Uganda Fishnet Manufacturers Ltd and West Nile Rural Electrification Company.
Others AKFED companies are: Diamond Jubilee Investment Trust Uganda Ltd, Diamond Trust Bank Uganda Ltd, Diamond Trust Properties Uganda Ltd, and The Jubilee Insurance Company of Uganda Ltd, Jubilee Investments Company Ltd and Tourism Promotion Services which owns the Serena Hotels chain.
I would have expected someone to first explain a little bit of detail on the USD$4.3 billion log, before we get to Bitature’s USD5 million speck!!
Beyond tax avoidance; the importance of offshore financial centres
Enough of this whataboutism.
Pardon me if I went on and on about AKFED, but I am simply trying to demonstrate that beyond the overzealousness with tax avoidance- as the biggest motivator of offshoring, there are many other reasons; call them benefits, why businesses could choose to offshore some or all of their operations.
A detailed and balanced look at offshoring would do justice to everybody.
In fact, AKDN and AKFED on their website, try to offer an insight on why they chose to be headquartered in Switzerland, regardless of the fact that they have very little actual business going on there.
“Switzerland is also the location for a number of activities, including the coordination of development programmes within AKDN and with international partners,” the group explains, adding: “The Aga Khan Fund for Economic Development’s (AKFED) Industrial Promotion Services (IPS) in Switzerland acts as a focal point and technical clearing house for Industrial Promotion Services (IPS) companies.”
In the above explanation, lies one of the major reasons for offshoring, because, offshore financial centers allow companies or investment funds to operate internationally without having to put up with the several different sets of rules in the various jurisdictions where they operate and, in the process incurring more costs of operating.
Of course there are numerous other benefits such as access to cheaper financing, guarantees of more economic stability e.t.c.
But away from the well documented benefits of offshoring, there seems to be a general misrepresentation, fanned by especially the purveyors of these leaks, NGOs and activist journalism that these countries that have been collectively branded as tax havens are some sort of dubious and corrupt hellholes where businesses or individuals, wishing to conceal their businesses dealings are given a red carpeted welcome.
To the contrary, most, if not all these countries have some of the best global corporate governance, transparency, competitiveness and ease of doing business rankings- which is why they are a popular destination of the world’s biggest corporates.
Let’s take Mauritius for example; in the 2019 Ease of Doing Business Report by World Bank, Mauritius is ranked in the 20th Position and is the only African country in the top 20- Uganda is the 127th.
In the World Economic Forum’s Global Competitiveness Report 2018, Mauritius is ranked No. 49 (again the only African Country in the top 50) – Uganda is in a distant 117th position.
Mauritius is ranked as No.6 globally, by PricewaterhouseCoopers and the World Bank Group in their Paying Taxes 2019 Survey, which investigates and compares the ease of paying taxes in 190 country tax regimes.
On the Corruption Perceptions Index 2018, Mauritius is in the 51st position and along with Seychelles, Botswana, Capeverde, Rwanda and Namibia, they are the only African countries in the top 60 least corrupt countries; Uganda is the 149th.
Do we now begin to understand why, if given choice and with the supporting legal framework, it would be every business’ dream to be domiciled in a country like Mauritius or Switzerland where things seem to be working?
I do believe, rather than whine about how more and more Ugandan businesses are choosing to register in the so-called tax havens, attention should be refocused on addressing key issues constantly raised by the private sector such as high tax rates, low tax morale, corruption, access to affordable financing, inadequate infrastructure, government bureaucracy etc.
We should probably be planning on sending our policy makers to Mauritius for some hard lessons on how to make economies work.
All said and done, if there is any wrong doing established, it should also be punished. However, I do believe that fairness demands that a little more investigations by competent authorities be done, before the screaming headlines.
The writer, is Executive Editor, CEO East Africa Magazine.