Africa must plug tax loopholes

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African countries must up their game and plug the loopholes through which money is leaving the continent by way of shady deals and illicit financial flows.

As we reported last week, the continent loses between US$50 billion and US$150 billion through illicit financial flows because of flawed and inadequate legal and institutional capacity.  These are huge sums of money by any standard and is enough to build infrastructure such as power stations, rail lines, roads, and telecommunications facilities.

In fact, most African countries’ budgets are nowhere near US$50 billion, a sum that could go a long way in building schools, clinics and water reticulation systems for a typical poor African country.  

An amount of US$150 billion will go a long way in financing the development of the Grand Inga III power project in the Democratic Republic of Congo which has the potential of powering half the countries on the continent.

The fact that Africa is losing such amounts annually speaks volumes about the way most countries do business.  This is sad considering that the continent is already losing its mineral resources and agricultural commodities which leave as raw materials and therefore fetch low prices on the international markets.  A story is told of a West African country which exports its bauxite (aluminium ore) to France at a far much lower price than what the processed aluminium fetches on the world markets.

Need we talk of precious stones?  Africa mines diamonds, emeralds, rubies, and gold, to mention but a few, but these are processed in Europe and America, where they create jobs for those countries at the expense of the countries of origin.  Thousands of Africans drown each year crossing the Mediterranean Sea following those same jobs exported by their countries. How said!    

As the quest for Africa’s industrialisation gathers pace, it is time for governments on the continent to strengthen their institutions so as to guard against illicit financial flows and shady deals that have impoverished the continent while at the same time enriching the former colonisers.

Former South Africa President Thabo Mbeki once raised the issue of how Africa is bled and under-developed by multinational corporations through illicit financial flows a few years ago and sadly nobody seemed to have taken him seriously.   Now Zambia President Edgar Lungu has once again raised the issue and it is time for Africans to take note and expeditiously find ways of stopping this financial drain.

Addressing the United Nations General Assembly two weeks ago, Lungu said the robbery of Africa through illicit financial flows has the potential to continue depriving the continent’s immense proportions of its resources and finances at the expense of economic development.  He noted that most African countries lacked adequate legal and institutional capacity to counter the scourge and failed to recover the stolen assets and proceeds.

This is a sad development. This week tax experts, representatives from several governments, the private and sector and non-governmental organisations gathered in Nairobi, Kenya, to further explore ways of curbing the illicit financial flows.   

It was once again noted that lack of capacity, skills, knowledge and advanced technologies continued to cost Africa, resulting in the loss of billions of dollars through illicit financial flows.

As Africa Tax Administration Forum (ATAF) executive secretary, Logan Wort, rightly pointed out, it is fundamental for African countries to invest in technologies for them to be able to maximise tax revenue from the digital economy.

He also noted that African countries were losing out through transfer pricing. Transfer pricing, he said, is where MNCs do business with native subsidiaries and the pricing for those transactions is not charged at a market related price. Under such circumstances, they suffer tax losses and so transfer pricing is one of the most causes of tax losses in these countries.

So while the continent is going all out to improve business and create the necessary conditions for investment through the creation of the Africa Continental Free Trade Area (AfCFTA), leaders need to be vigilant and put an end to illicit financial flows.

As we have said before, it boggles the mind why the continent continues to wallow in poverty when it has all the minerals found on this earth as well as rich fertile soils and a good climate to promote agricultural development.

Africans can therefore not remain poor amidst these abundant God-given natural resources. We urge political and business leaders on the continent not to tire in seeking ways to develop Africa. This can be done if everyone puts their heads to the wheel.

 

 

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