Influence of tax dodging on tax justice in developing countries: some theory and evidence from Sub-Saharan Africa

Abstract

Purpose The mobilising domestic resources, in particular, taxation, is key to unlocking the resources required for public investment in infrastructure, growth and sustainable finance. This study aims to share the perception that the tax arrangements of states and the transnational corporations (TNCs) of developed states have a critical effect on the development prospects of the less powerful states in developing countries. Design/methodology/approach This paper locates the role of TNCs tax practice within the broader dynamics of globalisation and the pursuit of profits, to argue that the drive of TNCs for higher profits can enrich our understanding of why some TNCs engage in tax dodging. This paper used publicly available evidence to shed light on the role played by TNCs in tax dodging practices in developing countries. Findings The evidence shows that tax havens and offshore financial centres, shaped by globalisation, are major structures facilitating the sophisticated tax schemes of highly mobile TNCs. This paper further shows that the corrosive effect of low-tax jurisdictions (“tax havens”) continues to represent a major obstacle to a regulation of global economic relations, which is required for maintaining sustainable social and economic development of poorer states. Research limitations/implications This paper used publicly available evidence to illuminate the role played by TNCs in tax dodging practices in Sub-Saharan Africa. Practical implications This paper, therefore, advocates a radical reform that could minimise the attendant problems created by the activities of TNCs and the enabling structures that facilitate these practices. Social implications Tax dodging has played a major role in causing serious damage to the economic and social landscape in developing countries. This in turn, has undermined social welfare and also investment in the public services, thereby eroding the quality of life and producing a decline in average life expectancy. Originality/value This paper is a general review of literature and evidence on contemporary developmental issues.