DOCUMENTS

Inquiry needed into transfer pricing by mining companies - Floyd Shivambu

EFF MP says an equivalent of 25% of GDP is being eroded by various forms of corporate criminality and theft

National Treasury Budget Vote 10 EFF Address by Commissar Floyd Shivambu

Monday, 21 July 2014

Honourable Chairperson,

1. The EFF obviously does not agree with the National Treasury Budget Vote because it is based on the National Development Plan, whose ideological underpinnings are the same as all the right-wing policies since 1994; GEAR and ASGISA. They all say pursue growth first and the rest shall follow. Such is narrow and has not succeeded anywhere. Trickle-down economics do not work anywhere.

2. We also reject the budget vote on the basis of a poorly conceptualised radical economic programme, which do not propose any substantial changes to the country's fiscal and monetary policies. Different ANC politicians say different things in terms of what is meant by radical economic transformation. If there is anything radical, it is the misdiagnosis on what constraints economic expansion in South Africa, and a radical misdiagnosis leads to radical application of wrong remedies. We will deal with that when we respond to the President's budget vote on Thursday.

3. There is however one phenomenon which we seek to address for this budget vote. This constitutes the reason why the EFF does not agree with the budget vote, but also a basis of concrete proposals on what is to be done to combat the massive corporate theft and criminality that has defined South Africa and the whole resource rich African continent for a very long time.

4. The phenomenon is called transfer pricing: Under transfer pricing, huge multinational companies create subsidiary companies in other parts of the world, largely known as the tax havens. They then sell all the goods and services they produce to their subsidiary companies in the tax havens, in order to avoid taxes in the countries where they extract these natural resources.

5. For instance, if the internationally agreed price of platinum is R1700 per ounce, these companies sell to themselves for R300 per ounce so that the tax they pay the country that they extract the natural resource is only for the R300. This is the most sophisticated form of tax evasion and capital flight defining not only South Africa today, but other countries such as Zambia for the copper and Angola and Nigeria for the crude oil.

6. In South Africa, transfer pricing is a reality and majority of if not all companies involved in natural resources engage in transfer pricing. This deprives the country of a resource base and tax revenue which could contribute significantly to the money that the State collects from companies to build schools, hospitals, and fight the diseases which these mines cause. Like we did in the standing committee on Finance and the portfolio committees of Mineral resources and Trade and Industry, we once again propose to this house that a Parliamentary Commission be instituted to forensically investigate the occurrences of transfer pricing and base erosion.

7. Under this, the commission should ask the critical questions of where does Lonmin, Glencore, BHP Billiton, Anglo American, African Rainbow Minerals and Shanduka sell their natural resources to and for how much. We need to investigate the corporations which ANC Politicians have interests in and we will discover so many things. We can assure Chairperson, that if this is done, SA will realise that an equivalent of 25% of its GDP is being eroded by these forms of corporate criminality and theft.

8. This also explains the fact that mining as a whole, only contributes less than R25 billion per annum into the national budget, despite the fact the SA is the biggest producer of more than 52 mineral resources, which make huge profits. What this means is that the whole revenue generated from Mining and Mines cannot finance eThekwini Municipality whose annual budget is above R35 billion per annum. Is it possible maybe that the subsidy which mining companies receive on electricity, water, and the resources the state spends to repair the environmental degradation and health hazards caused by mining exceed its contribution to the national revenue and budget?

9. Now, the National Treasury and SARS carry an obligation to combat these forms of corporate criminality and capital theft. There has however never been a credible programme from both these institutions to combat these phenomena which rob SA of its potential wealth. Well, there is an ongoing commission on taxation, and it does not look like there is proper political leadership provided on this process.

10. Coupled with local beneficiation and industrialisation, which should be implemented in a clearly defined and coordinated way, national treasury should retrospectively collect all the taxes that SA has been robbed of in the mining sector and utilise the money recovered to heavily invest in local beneficiation and industrialisation of mineral resources. Such will create jobs, and decisively deal with the crises of poverty, unemployment and underemployment.

11. There currently is no clearly coordinated industrial expansion strategy in South Africa because entities and policy instruments work in silos, and the National Development Plan, which both the DA and ANC worship, say nothing about the industrial policy and expansion. If properly prioritised, industrial policy will illustrate to national treasury that fiscal and monetary policies should be aligned to the need for industrial expansion.

12. Currently, the Reserve Bank is in control of monetary policy, and its decisions recurrently affirm South Africa as a semi-colonial exporter of natural resources and importer of finished goods and services.

13. Such should be discontinued, so that the fiscal, monetary, macro and micro-economic policies are aligned to industrial expansion. Unless such is done, the EFF will never agree with any budget vote of the national treasury. We vote No!

Issued by the Economic Freedom Fighters, July 21 2014

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