Tax scam costs Africa $15 billion yearly

Illicit financial flows represent missed opportunities for West Africa’s development and economic needs

Ouch! African countries are being robbed of $15 billion a year thanks to a tax revenue scam. The damning statistics are from Global Financial Integrity (GFI) reports which have been analysed to show lost tax and its implications for health spending in Africa.

Given the nature of investigating secretive tax practices, the figures are necessarily ballpark and illustrative. GFI is a non-profit, Washington DC-based research organisation whose work is routinely cited by international institutions such as the OECD and UN.

According to GFI, ‘trade misinvoicing’ involves manipulating the price, quantity, or quality of a good or service on an invoice so as to shift capital illicitly across borders.

Trade misinvoicing is carried out by small, medium or large national companies which misinvoice imports or exports. While multinational enterprises probably also misinvoice, their tax numbers are not declared so GFI and Making a Killing focus instead on small, medium or large national companies.

What is more, capital flight and illicit financial flows represent missed opportunities for generating state revenue desperately needed to finance key sectors of West Africa’s economy, tackle poverty and invest in social protection and safety nets.

This is the sum of a joint report by the Open Society Initiative for West Africa (OSIWA), a grant-making and advocacy foundation and Dalberg Gobal Development Advisors, a strategy and policy advisory firm.

Though the exact amount lost annually is debated, the report notes that the deficit is significant and undermines economic governance, financial development and fiscal transparency throughout the region.

This report estimates that between 2012 and 2018, ECOWAS governments could raise up to US$56 billion in tax revenue by implementing effective transfer pricing regimes.

“This report serves as a call to action to the entire ECOWAS region, as 2015 is an election year for many countries,” explains Dr Ibrahima Aidara, OSIWA’s Economic Governance Program Manager.

“This period marks a real opportunity for governments to re-examine their economic policies in favor of more coherent and structured tax policy and transfer pricing,” he adds.

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