By JOINT REPORT The EastAfrican
In Summary
- Big corporations masterminding the illicit flows are also the biggest beneficiaries of tax incentives which cost EAC countries of Kenya, Uganda, Rwanda and Burundi a combined $2.8 billion in foregone revenues, new data shows.
- At least 70 per cent of the illicit movements involve multinationals and commercial transactions like corporate tax evasion and avoidance.
- A meeting of African Finance ministers and central bank governors in Abuja, Nigeria which ended on March 31 agreed to work on ways of taming illicit flows and eliminating harmful tax incentives.
East African countries could be the biggest
beneficiaries of a new African Union-led push to stop illicit cash flows
on the continent. The AU plans to clamp down on cheating corporations
and government officials who siphoned at least $60 billion from Africa
last year.
The big corporations masterminding the illicit
flows are also the biggest beneficiaries of tax incentives which cost
EAC countries of Kenya, Uganda, Rwanda and Burundi a combined $2.8
billion in foregone revenues, new data shows.
In its preliminary report released last week, an
AU-backed taskforce led by former South African President Thabo Mbeki
notes that African economies are losing $50-$60 billion annually, and
the Eastern Africa region is emerging a haven for cheats, especially
with the ongoing oil, gas and minerals bonanza.
The data shows that East Africa commanded at least
11 per cent of the illicit flows in Africa, coming third after North
and West Africa with 28 and 13 per cent respectively. The Mbeki led-team
is set to hand the final report to the AU for action.
These flows relate principally to commercial
transactions, tax evasion, criminal activities (money laundering and
drug, arms and human trafficking), bribery, corruption and abuse of
office.
“Criminal networks involved in money laundering,
drug, arms and human trafficking have the ability to infiltrate and
undermine state structures and occupy influential spaces in some African
countries...,” noted the AU team.
At least 70 per cent of the illicit movements
involve multinationals and commercial transactions like corporate tax
evasion and avoidance, said the AU panel.
However, some government officials, led by Bank of Uganda’s deputy governor Louis Kasekende have disputed the figures.
“These estimates are extremely tentative to put it
mildly, because they are derived from errors and omissions in the
balance of payments and discrepancies in recorded trade between
bilateral trading partners (such as differences between what Uganda
records as exports to Germany and what Germany records as imports from
Uganda). There could be many reasons for these errors, omissions and
discrepancies in trade and balance of payments data besides illicit
financial transactions...,” said Dr Kasekende.
Economists from the United Nations Economic
Commission for Africa (ECA) and the AU, government officials and
independent analysts said illicit flows, combined with wide-ranging tax
exemptions granted by governments in East Africa were denying the region
the much needed funds for growth, raising questions on the
effectiveness of the growing search for foreign direct investments.
“Multinationals are the biggest masterminds of
these illicit flows especially in transfer pricing. When you look at
all these contracts and transactions, there are intermediaries involved
which makes it hard to nail down the real culprits,” said Carlos Lopes,
the executive secretary of the ECA.
A meeting of African Finance ministers and central
bank governors in Abuja, Nigeria which ended on March 31 agreed to work
on ways of taming illicit flows and eliminating harmful tax
incentives.
“The unacceptable loss from such illicit outflows
far exceeds the amount of official development assistance to Africa.
Halting illicit flows, at the sources and at their destinations, will
help fund substantial parts of the continent’s long-term Agenda for
2063,” said Nigerian President Goodluck Jonathan during the meeting.
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