On the main road to the home of Zambia Sugar Plc, a large sign advises visitors: “Welcome to Mazabuka – 4km to the sweetest town in Zambia.”
Lying around 100km south-west of Zambia’s capital, Lusaka, the town has been described by the chief executive of Zambia Sugar’s parent company as an island of “relative prosperity” in a country where malnutrition and poverty are still rife.
George Weston, 48, who earns £918,000 a year plus an annual bonus of £864,000 leading Associated British Foods, is right. Jobs created by Zambia Sugar in and around its Nakambala Sugar plantation in the Mazabuka district are vital to local livelihoods.
And it is a growing business, an important part of the Kingsmill bread, Primark clothing, Silver Spoon sugar, Twinings Tea and Ryvita crackers empire. The plantation and factory made record profits in 2012 and is expected to exceed 400,000 tonnes of sugar production this year for its Europe and Africa markets.
But as ActionAid’s report into Zambia Sugar’s tax arrangements notes: “Even amidst Mazabuka’s lush green cane fields, the availability of overstretched public services is sometimes literally a matter of life and death. Such public services rely, of course, on everyone paying their due taxes.”
Mazabuka’s Nakambala Urban health centre say two malnourished children die every month with it. At the school, 1,200 children fit into 12 classrooms in shifts taught by 20 teachers.
The local public services need cash from the government, and the state is reliant on almost 20% of its income from corporation tax and taxes on money leaving the country. Yet between 2007 and 2012 Zambia Sugar paid less than 0.5% of its pretax profits in corporation tax. Between 2008 and 2010, it paid no corporation tax at all.
The company says “as a direct result of our investment in Zambia since 2008, the availability of substantial capital allowances has led to virtually no corporate tax being payable”. It also benefits from other tax reliefs, including one for farmers which it won after taking the government to court in 2007.
But ActionAid’s year-long investigation into the complex corporate structure around Zambia Sugar suggests there is a more troubling story behind the numbers. A third of the company’s pre-tax profits – more than $13.8m a year – are paid out of Zambia via tax haven sister companies located in countries where taxes have been, currently are, or are likely to be, lower than in the African state.
Before the Zambian taxman gets to it, the company pays large “purchasing and management” fees to an Irish sister company which does not employ a single member of staff, according to its company accounts. Money can flow freely from Zambia to Ireland untroubled by the taxman due to a bilateral treaty.
Associated British Foods says it has repeatedly made accounting errors and it actually has 20 people in Ireland doing “real work”. Yet they were peculiarly absent when ActionAid phoned and visited the offices in Dublin to find that neither the telephone operator nor receptionist had heard of the company.