Richard Murphy argues that PwC makes a “fundamental accounting flaw inherent within” its Total Tax Contribution report. Richard says in relation to the diagram reproduced below:
Seen the problem yet? It’s this: the total tax rate is expressed as a percentage of profit.
Richard is correct but I believe it is much worse than he suggests. PwC’s argument isn’t only flawed, it is thoroughly misleading. Here’s why:
PwC is making a fundamental assumption that profit taxes are a cost of doing business. They are not. This has been argued before. Take a look at this non-sensical diagram for example:
Labour and other taxes are often tied to locally incurred costs. Labour rates for example in Latin America, Eastern Europe, Central Asia and Sub-Saharan Africa are a fraction of those in OECD-High income countries. Therefore, the impact of taxes related to labour alone are a fraction of those incurred in other territories. That’s why there’s a rush to outsource to the so-called BRIC (Brazil, Russia, India and China) countries. Two weeks ago, a person I met who operates throughout Asia who said that labour arbitrage is such a huge differentiator that wage inflation of 25-30% hardly represents a blip compared to the charged out rates applied back in the West.
Lumping percentages together in this way conveys a thoroughly skewed picture which, on face value, would discourage anyone from doing business in the BRIC countries. More to the point, does PwC think we’re all idiots? A year 1 CIMA student could work out just how appallingly illogical this argument really is. Or as Richard put it:
It’s illiterate in accounting terms…It’s flawed in economic terms. It’s biased. And it fails to consider the impact of its findings. Apart from that, it’s a profound waste of the World Bank’s money.
The sadness in all this is that well meaning people are being hood winked by consulting brands that are intellectually bankrupt and thoroughly discredited in the wider context of CSR. But it matters not to them. When you’re painting a picture of this kind, it is so much easier to sell GRC services tied to falsehoods around CSR. Especially if you can make the seductive, if entirely false claim that business tax is a cost of doing business.
One more nail in the profession’s reputational coffin.
Technorati Tags: PWC, tax justice, tax research
