By Chris Zumani Zimba
According to the company’s Standards of Business Conduct (SoBC), British American Tobacco (BAT) boasts that, “Our actions and behaviour impact all areas of our business – which is why corporate behaviour is such an important focus for our long-term sustainability strategy. Our commitment to good corporate behaviour is underpinned by our Group Standards of Business Conduct (SoBC), or localised equivalent, which require every Group company and all staff worldwide, including senior management and the Board, to act with a high degree of business integrity, comply with applicable laws and regulations, and ensure that our standards are not compromised for the sake of results”1. But according to recent investigative studies, all these claims are brutally false and pathetically fake; mere empty business rhetoric meant to deceive the masses as the company rationally never live to their own set rules of corporate engagement as they wine and dance in multiple crooked practices such as shifting monies to ‘tax havens’2 wherever they operate.
A new study report by Tax Justice Network has exposed BAT, the UK originated global company to be religiously and consistently engaging in serious different forms of tax avoidance practices on the money they make in poor countries across the world, Zambia inclusive.
- British American Tobacco Brutally Stealing from Poor Zambians in Tax Avoidance Schemes
In April this year, a European firm, Tax Justice Network exposed and revealed in their investigative report a range of mechanisms used by BAT in 2016 alone to secretly shift income made in poor countries equivalent to over 12% ($941 million) of its pre-tax profits annually to BAT Holdings Ltd, a UK-based subsidiary where BAT paid almost no corporate income tax3. The report noted that BAT avoids paying tax in poor and middle countries by charging itself royalties, rerouting loans through tax havens and paying interests fees on loans made between regional offices3. Prominent on the list of victim African countries losing millions of dollars annually from BAT in tax avoidance practices is Zambia, Kenya and Uganda. From face value, it simply means that BAT is brutally but secretly stealing from poor Zambians just like in other countries through such tax avoidance schemes. Of course, this theft is in millions of dollars annually that can only be ascertained through forensic investigation of the firm.
Besides the company making huge profits from their core tobacco business annually, the report reveals that BAT is tactfully dodging or shrinking its tax contributions in low and middle income countries, Zambia inclusive while they know that public funding is high in need and short in availability. Alex Cobham, chief executive at the Tax Justice Network, said: “tobacco companies make a lot of noise about paying tax, but the nearly $1 billion that British American Tobacco shifted out of developing countries in a single year into one UK office – and the life-changing tax it avoided on that profit – tells a very different story”4.The fact that BAT makes huge profits annually in Zambia and other poor countries on their core businesses and consequently hides some of these profits into ‘tax havens’2 in the UK, it means that their conduct is certainly injurious to the economies of these poor states where they operate.
As you know, ‘tax havens’ are countries with low or no “effective” taxation for foreign investors or simply say, ‘places of financial secrecy’2. Is indulgence into tax avoidance theft? What is the relationship between ‘tax havens’ and business integrity? Anup Shah says “Individuals and companies all have to pay taxes. But some of the world’s wealthiest individuals and multinational companies, able to afford ingenious lawyers and accountants, have figured out ways to avoid paying enormous amounts of taxes. While we can get into serious trouble for evading payment of taxes, even facing jail in some countries, some companies seem to be able to get away with it”7.
War on Want reported that “the revenue lost is a truly enormous sum in a country where 74% of the population live on less than $1.25 a day and six million people – 43% of the population – are undernourished…The new research in this report calculates that a staggering sum – up to $3 billion a year – is lost by the people of Zambia to tax avoidance and tax evasion by multinationals”8.
Here is how the crooked business conduct of BAT presents an overt mockery for Zambians. “The revenue lost is a truly enormous sum in a country where 74% of the population live on less than $1.25 a day and six million people – 43% of the population – are undernourished”8. Hence, their tax avoidance tactics becomes brutal theft against the Zambian poor.
- British American Tobacco (BAT)’s Double Harm on Poor Zambians
According to empirical facts of February 2019 from Ministry of Health, WHO and UNDP, tobacco is a huge health and economic burden for Zambia with: (1) the poorest and least educated people most likely to consume tobacco; (2) tobacco smoking killing 7,142 Zambians yearly; (3) 60% of these annual tobacco related deaths coming from energetic individuals under the age of 70 years; (4) 800 of the 7,142 annual tobacco related deaths due to second hand smoking; (5) tobacco costing the Zambian economy K2.8 Billion annually, an equivalent of 1.2% of the country’s GDP in healthcare expenditures and lost productivity capacities due to premature mortality, disability and workplace smoking5.
While BAT is maliciously dodging and avoiding to pay taxes in Zambia where it is making huge profits annually, the company is fully aware that tobacco, their daily product kill at least 50% of its users-smokers; smoking increases the risk of having a stroke by at least 50%, which can cause brain damage and death; smoking causes 84% of deaths from lung cancer and 83% of deaths from chronic obstructive pulmonary disease (COPD); smoking damages the heart and your blood circulation, increasing the risk of conditions such as coronary heart disease, heart attack, stroke, peripheral vascular disease and cerebrovascular disease; and smoking increases the chance of getting stomach cancer or ulcers as well as kidney cancer6. With all these ramifications of tobacco among many others, the Zambian poor lose and die while BAT wins. “For every dollar British American Tobacco (BAT) paid in tax in the countries it operates in, the giant multinational shifted more than half a dollar that would have been taxed locally to a UK subsidiary where BAT paid almost no tax”, concluded the report by Tax Justice Network. .
- Key Policy Recommendations and Control measures for Zambia
The Zambian authorities need to act now for themselves and their poor citizens to stop BAT and its like-minded firms. The politics of tax avoidance through existing policy leakages are real while tax cheating and manipulative practices by the tobacco industry keep on damaging the economy and Zambians. And this is the proposed way forward on BAT:
- Firstly, the Zambian government needs to learn from others and start from here: put BAT on the investigative ladder and scrutinize the firm from its hair, nose, heart and body in Zambia in terms of tax compliance over a period of time-5 or 10 years with immediate effect. BAT is currently being investigated for tax avoidance in Brazil, South Korea, South Africa and the Netherlands as well as being probed for corruption in the UK, Romania and Kenya7.
- Secondly, the policy position Zambia needs to take in terms of vigorous regulation and control of the industry is to increase tobacco taxation from the current 30% to WHO FCTC recommended 70% or something close as per FCTC Article 6. This is another practical way of reducing product affordability as well as ‘sharing’ the economic and financial gains due to the harm born from tobacco and smoking on national health bills and human loss; and
- Thirdly and lastly, speedily support the domestication of the WHO FCTC through the “Tobacco Products and Nicotine Products Bill”,a multi-sectoral proposed legislation for Zambia.
Through Zambia Revenue Authority (ZRA), Zambians deserve to know if BAT is involved in ‘Tax Evasion’, ‘Tax Avoidance’ or both as well as if the company is free from all. The difference and similarity is that both Tax Evasion and Tax Avoidance serve the purpose of reducing the taxes and thereby depriving or stealing from the government and the poor.
As we all know that the core business of BAT is ‘to produce and promote tobacco and smoking globally’, we cannot overstretch that, by indulging in tax avoidance practices, BAT is robbing Zambia and other victim states of the much needed resources to invest in public health costs born from the negative impact of their businesses. This is too heartless and unjust for the poor like Zambians. Alex Cobham, chief executive at the Tax Justice Network rightly noted that: “cigarettes not only impose massive human costs, those who profit from them are actively depriving lower-income countries of the public funding they need to provide people with health services. At a minimum, governments must require tobacco companies to publish country by country reporting to make sure profits are taxed in the communities where they were raised, not in the tax havens they were syphoned off to”3. This is what the Zambian government needs to do, and now.
But British American Tobacco (BAT) responded to the Tax Justice Network’s report saying: “the Group fully complies with all applicable tax legislation where it does business, operates the transactions that occur between Group companies on an arm’s length basis and is a significant tax contributor to Governments worldwide. Classifying countries such as the Netherlands and the UK as tax havens is simply not a credible claim… the tax loss of $58.9m identified by the report simply does not arise”4. As far as BAT is concerned, Tax Justice Network report is false and baseless. But will the Zambian and many African governments take this response? How many thieves openly accept and declare that they steal and deprive their victims? Thus, who will believe BAT’s defence at this point now? Very few or no one indeed unless after being tried and tested to vigorous fire of forensic audit investigations.
As a citizen and voter, I personally don’t believe BAT’s response and just call upon the Zambian government to speedily strengthen tobacco control measures in a more practical way. In this case, Zambia must increase taxation threshold on all tobacco products to WHO FCTC recommendations of up to 70% and close up all leaking existing polices, laws and taxation mechanisms especially as the tobacco industry is globally known for such business brutality, false claims, heartless crookedness and vicious tax avoidance manipulations. And BAT is such a company in Zambia and everywhere they operate as per latest report.
Chris Zumani Zimba is a prolific Political Scientist, Policy Analyst, Author, Blogger, PhD Scholar, Researcher, Consultant, Public Health and Tobacco Control Advocate. Besides being the CEO and Managing Consultant at Chrizzima Democracy University (CDU) in Zambia, he analyses African politics weekly on Voice of the Cape Town, South Africa every Wednesday at 16:45hours CAT. So far, he has authored more than 10 political and academic books as well as published over 100 well researched articles on African politics and public health. Sometimes, he lectures Political Science-Part Time with University of Zambia (UNZA) and University of Lusaka (UNILUS) outside his usual commitments. Chriszumanizimba.firstname.lastname@example.org or email@example.com; +260 973 153 815
- British American Tobacco (BAT), 2018:32-34, “Transforming Tobacco-Annual Report and Form 20-F 2018”, Globe House: London
- Shaxson, Nicholas (9 January 2011). “Explainer: what is a tax haven?”, The Guardian. The Guardian. Retrieved 30-04-2019.
- Tax Justice Network (2019:1), “BAT shifts nearly $1bn out of developing countries into one UK office”, accessed from https://www.taxjustice.net/2019/04/30/bat-shifts-nearly-1bn-out-of-developing-countries-into-one-uk-office/
- Ministry of Health, WHO and UNDP, (2019:1-2), “Investment Case for Tobacco Control in Zambia”, a Paper Presentation at Intercontinental Hotel, 27th February, 2019, Lusaka, Zambia
- Smoke Free (2018:1), “How smoking affects your body”, accessed from https://www.nhs.uk/smokefree/why-quit/smoking-health-problems, Retrieved 20/11/2018; NCBI (2018), “Tobacco (Electronic cigarette): An evil in many faces”, accessed from https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4456732/Retrieved 04/12/2018
- BAT 2016 Annual Report (page 101 and page 106) https://www.bat.com/group/sites/uk__9d9kcy.nsf/vwPagesWebLive/DO9DCL3B/$FILE/medMDAKAJCS.pdf; “Serious Fraud Office investigating British American Tobacco p.l.c”, Serious Fraud Office, https://www.sfo.gov.uk/2017/08/01/sfo-investigating-british-american-tobacco-plc/; “Inspectors of the Control Corps verify Aurelia Cristea’s interrogation on governmental irregularities in tobacco matters”, Bursa.ro, http://www.bursa.ro/inspectorii-corpului-de-control-verifica-interpelarea-aureliei-cristea-privind-neregulile-guvernamentale-in-materie-de-tutun-64009823; “Kenya: Njiraini Says They Are Working With EACC Over BAT Bribery Saga”, All Africa, https://allafrica.com/stories/201512240399.html
- Global Issues (2019 :1), « Tax Avoidance and Tax Havens; Undermining Democracy », http://www.globalissues.org/article/54/tax-avoidance-and-havens-undermining-democracy
- War on Want, (2019 :1-2), “Extracting Minerals, Extracting Wealth-Zambia Tax Report”, accessed from https://www.waronwant.org/sites/default/files/WarOnWant_ZambiaTaxReport_web.pdf