Risk & Economy » Tax » COVER STORY – Taking taxes into Africa.

COVER STORY - Taking taxes into Africa.

PwC's Richard Collier-Keywood helps companies get to grips with British tax laws. He also helps African countries create the tax legislation they need to finance their future and purge corruption.

The ambush happened late at night. Richard Collier-Keywood, tax partner at Coopers & Lybrand, now PwC, had gone out for a meal with the Revenue’s commissioner of investigations. On the way home, a gang of men waving machine pistols forced them over and dragged them out of the car. They were lucky. The gunmen didn’t steal anything, just searched the pair, then let them go. And the attack was utterly random. Had the men known who their victims were then the ending might have been very different. It was Uganda in the early 1990s and Collier-Keywood was there to implement the country’s first fully functioning tax regime. With funding from the British government, a team from Coopers set up the Ugandan Revenue Authority, an entirely new institution. His dinner companion had the unenviable task at the URA of stamping out fraud and corruption. The project fulfilled all its dramatic potential. Evasion was rooted deep in the national culture. As the state-owned paper New Vision said earlier this year: “In the good old days, when taxes were rarely paid, deficits would be made up by printing new money in the guise of borrowing from the central bank.” Vocal lobbying groups from both sides of the employer/workforce divide protested against changing this happy situation. What made the job even tougher, though, was that it pitted Coopers against powerful state officials, backhander-fat and determined to protect their wealth. For all that the team kept their profile low, making sure the URA appeared as the public hand behind every action, threats were frequent – letters, calls and sometimes even in person. They lived in high-fenced compounds with short-wave radios in case someone cut the phone lines. Yet Collier-Keywood is keen to play down the dangers. “If you go into a country all guns blazing then I think you’re asking for trouble,” he says. “If something goes wrong, it’s clearly going to go wrong in a major way. But if you play it low key, I reckon you’re almost safer than you are in England.” He’d be on firmer ground – especially after the armed hold-up – comparing the Uganda of 1992, when he first went there, with the years of bloody conflict before. The country gained independence within the Commonwealth in 1962. Since then, it has gone through three coups (one of which lead to Idi Amin’s eight-year reign of terror in the 1970s), transformation into a republic, invasion by Tanzania and constant ethnic feuding. President Milton Obote, now in exile, did institute liberal economic policies in the early 1980s to win western financial support (the source of most of the country’s current external debt). But it took several years under Yoweri Museveni, the man who ousted him and still holds power today, before Uganda found even a measure of stability. Once it did, the country could turn to western donors for help to regenerate the economy. The images linked to aid are harrowing: thousands starving to death if the wealthy nations of the world don’t send staff, food, medical supplies and … the taxman? It sounds unlikely – as unlikely as the sight of Collier-Keywood in his City suit at airports pock-marked with bullet holes. But, over the years, the British government has made quite a name for itself for setting up revenue authorities in Africa. The IMF also provides tax-aid. The World Bank does too: it paid the wages of the commissioner general of the URA. And so does the European Union, especially in the case of introducing VAT. After all, recipient nations must raise all the revenue they can if they are to service current international loans and win new ones, which is really what makes these governments play ball. However, the bigger aim is to help them become self-sufficient so that they can finance their own development. In a white paper presented last November, Clare Short, the secretary of state for international development, explained: “We will support a closely integrated approach in which the IMF contributes to the establishment of sound macro-economic and financial policies to encourage pro-poor growth, while the (World) Bank complements these efforts by promoting policy, institutional reforms and projects that focus on the elimination of poverty.” And if these bodies are involved, then so too usually is Coopers. The firm has virtually cornered the tax-aid market, from introducing VAT to Pakistan to institutional development in the former Eastern Bloc and Customs reform in Zimbabwe and Lesotho. Like others, many African states were inspired by the privatisation whirlwind under Margaret Thatcher. Coopers’ consulting arm did a lot of work adapting Conservative credos into structures that would work over there. Then, in 1991, it decided to fight back against the flagging consultancy market by adding a tax partner to the team for the first time. Now the firm could tackle fiscal policy as well as IT, auditing for investigations, human resources and management finance. It tendered to the Department for International Development for the Ugandan job, and won. It was a three-year contract to merge Customs and Revenue into a brand new organisation and build both a tax-collecting and a tax-paying culture. There were a host of personnel issues to face first. The international team took the seven senior jobs in the URA. Then they executed a fairly rigorous weeding out of Ugandans who, as Collier-Keywood puts it, were just not very good at their jobs because they’d been recruited on the basis of who they knew. Staff were paid a pittance, which made crime attractive. So the team persuaded the government to triple wages, making them the best in the state sector. “We did start to have a situation where you had a group of people who could be trained to do a decent job,” he says. That training went a lot further than which box to put the tick in. Staff had lived for so long under a pall of fear that, as Collier-Keywood saw it, they had virtually opted out of taking responsibility for their own lives: doing the wrong thing had all too often had fatal consequences. There was a whole middle management class which actually refused to take decisions, even simple ones. Typically, everything would get delegated to the head of department which made it incredibly inefficient. The Ugandan staff learned how to be non-confrontational but get what they wanted. It sounds simple, but Coopers has such faith in its various training packages that it feels no need to call in a security firm to prepare its own staff, as many multinationals do, before they send them to dodgy parts of the world – the Palestinian National Authority is another client. Getting the processes right was also part of the education – manually first, then Coopers looked for elements that could be computerised. If people don’t understand what they’re doing and why, then technology only compounds the chaos. The Ugandans had only ever had a couple of computers, used mainly with spreadsheet applications for management information rather than taxpayer records. Now the revenue authority’s IT infrastructure is almost fully in place. Still light years behind the UK, where the URA does win hands-down is in the merging of indirect and direct tax-payer information. This considerably reduces the twilight zone in which fraudsters can operate. And that was what they had to communicate: tax is certain. It is not possible to get out of paying it. This is the consequence if you do: interest and penalties mount up. And it’s going to be enforced. Combine that with the idea that good taxpayers will get left alone and Collier-Keywood claims: “Provided they know there’s the political will behind the revenue authority, people slowly but surely start to get the message.” Political will is never certain. If transparently absent, then Coopers won’t touch the job with a barge pole. “There is absolutely no point in trying to remove corruption if the whole heart of the regime is corrupt, because there is going to be no support for you.” But if it’s a more minor glitch, Collier-Keywood is the man who sorts it out. A large part of his role is mediating between all the parties involved. On one project, a very senior official was blocking every attempt to challenge certain taxpayers. The finance ministry was behind Coopers. So were the international donors. Collier-Keywood went in and persuaded the man to change his mind (and his term of office has not been renewed). It’s vital that people believe the whole tax system is fair. The third element of the education process is engendering a sense of social responsibility – understanding why you have to pay tax. But if collection isn’t equitable, there will be little faith that the distribution is either. Even without multi-million pound ad campaigns and Hector the Inspector, communicating all this is not as insurmountable as it sounds. The majority of revenue tends to come from a small number of taxpayers, mostly international and large national corporations. Like the fistful of global hotel groups that have opened up in Kampala to take advantage of the booming Ugandan economy: when Collier-Keywood arrived there in 1992, there was a dirt road from the airport; now there’s tarmac everywhere, car ownership is soaring and once empty streets are gridlocked. In fact, he can’t help but feel sorry for the people dealing with such enormous change. And that’s not his only regret. Coopers recommended a gradual withdrawal, but when British government funding came to an end in 1996 the firm had to pull out. The tax-take may have gone up tenfold under the URA but the backsliding has already begun. In 1997, the auditor general unearthed a loss of over Ush124m due to forgery and under-collection. The URA is also owed more than Ush1.17bn in taxes which should have been collected at Entebbe airport and Malaba entry points. Except for vetting every project before it starts, there’s little Collier-Keywood can do. But that process is extremely rigorous: the donors demand it and Coopers has a reputation to protect. “We’ve often looked at things and said, ‘mmm, not sure about this’.” Rwanda is the latest country to pass the Coopers test. And again Collier-Keywood is a sign of peace. In 1994, one million Tutsis died at the hand of the Hutus. But, this year, the government managed for the first time ever to formulate the budget on time. Core to its policy is reviewing tax collection following the Uganda approach, and on 1 January it launched a new revenue authority. “There is probably less corruption than there is in Uganda because there’s very little wealth in the country to be corrupt about. The key is that we are going in at an earlier stage.” It is probably an easier task but a more difficult place. The foreign office Internet page still says: do not travel there. And Coopers had to get the department to lean on the Inland Revenue which was reluctant to lend them staff. Clout is the upside of working for the government. And there is a small spin-off for Coopers in that it raises the profile of the international offices which do a lot of the groundwork. “The downside, as always, is that the margins are at the bottom end of our profitability criteria.” Coopers only makes £5m a year from these sorts of projects; in fact Collier-Keywood spends more time giving tax advice to multinationals and fulfilling his management role. But this is the man who took a six-month sabbatical to decide if he wanted partnership, and nearly joined a poverty relief team in Siberia instead of coming back. Collier-Keywood really loves the tax-aid work and, one imagines, makes a vocal advocate for it within the firm. “I think I have learnt so much about the economics behind the tax system from doing this,” he says. “To me, the key component of focusing on poverty is actually to get the tax system right. Then you can reinforce a more equal distribution. To me, there can be no more effective programme.” Additional interview material by Jane Barber.

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