Stopping Illicit Financial Flows to boost growth in Africa

Aug 14, 2017

To control illicit financial flows (IFF) in Africa, there is need for new continental mechanisms to regulate transfer pricing, public tax transparency and fiscal disclosure rules for multinationals and private individuals.

These are the recommendations of a two-day High Level Technical Consultation Dialogue on Public Tax and Fiscal Transparency Rules for Multinationals and Private Individuals in Africa, that took place in Nigeria’s capital Abuja during 27-28 July 2017.

The consultation was organized by the United Nations Development Programme (UNDP) in partnership with International Institute for Democracy and Electoral Assistance (IDEA).

More than 50 people participated with representation from the African Union Commission (AUC), African Development Bank (AfDB), Africa Tax Administration Forum (ATAF), Independent Experts, International Monetary Fund (IMF), World Bank (WB), Tax Justice Network, and United Nations Economic Commission for Africa (UNECA).

The consultation called for Africa to develop its own continental public tax transparency and fiscal disclosure rules, if the continent is to finance its own development and meet its obligations under the Sustainable Development Goals (SDGs) and the African Union’s (AU) Agenda 2063.

“As the task of financing the SDGs loomed on the horizon, and Official Development Assistance (ODA) systematically on the decline, dealing with tax and fiscal criminality is becoming even more pressing for African governments given that Africa is by far the ‘greatest loser’ on illicit financial transactions,” said UNDP Nigeria Country Director Dr. Samuel Bwalya.

According to the 2013 AU High-Level Panel Report on IFFs, it is estimated that despite Africa’s best efforts to address and raise its development resources domestically, the continent loses approximately USD 50 billion annually in illicit financial flows resulting from licit and illicit activities by individuals and Multinational Corporations (MNCs).

Global Financial Integrity (GFI) further estimates that Sub- Saharan Africa lost over USD 675 billion between 2004 and 2013 in IFFs.

For a continent that faces multiple challenges such as severe poverty and insecurity, this is significant and is further magnified given the resource constraints facing many countries on the continent.

Over the two days, the meeting participants discussed the challenges to, and opportunities for a continental public tax transparency and fiscal disclosure rules for multinationals and private individuals’ framework, and made recommendations on how Africa can develop its own framework.

Considering the amount Africa loses through these illicit transactions and tax avoidance, there is an urgent need for African countries to develop and strengthen every aspect of national oversight regimes, and to collaborate on a succinct framework covering public tax transparency rules for multinationals and private individuals.

Participants at the consultation proposed that the continental framework build on other proposals to introduce sharing of information between tax authorities and cross-jurisdictional reach of enforcement.

The new rules proposed in the meeting discussions would require multinationals operating in Africa with global revenues exceeding a predetermined dollar amount a year to publish key information on where they make their profits and where they pay their tax in Africa on a country-by-country basis.

The same rules would apply to non-African multinationals doing business in Africa. In addition, companies should be required to publish an aggregate figure for total taxes paid outside Africa.

Following the consultation, a policy brief with clear recommendations and roadmap for a new continental framework for public tax transparency and fiscal disclosure rules for multinationals and private individuals will be submitted to the AU member states as consideration for adoption, and as an addendum to the current Africa Union’s Convention on Combating and Preventing Corruption. 

In addition, UNDP Africa will develop a regional initiative on tax administration to support countries review and strengthen their legislation, as well as enhance capacity of their oversight institutions for more effective tax administration.

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