The quest of African countries to carry out economic stability and transformation is threatened by illicit financial outflows through tax evasion and avoidance, a UN expert observed here on Thursday.

He said the draining of tax revenues and scarce foreign exchange resources stifled growth and socio-economic development and weakened governance.

Kojo Busia (Ph D), Senior Mineral Sector Governance Advisor, United Nations Economic Commission for Africa (UNECA), made these remarks at the opening of a two-day International Conference on Resource Taxation.

African Mining Vision – a developmental vision adopted by the African Union in February 2009, advocates the use of Africa’s mineral resources for development.

It advocates the use of Africa’s natural resources to transform the continent’s social and economic development path.

“To achieve such a transformative agenda of the AMV, Africa would have to mobilize every dime and penny accruing from its natural resource rents,” Busia averred.

He therefore urged African leaders to tackle decisively the scourge of illicit financial and capital outflows through tax avoidance, evasion and transfer pricing so that the continent could harness the potential of its mineral resources for transformative development.

Relying on data from Civil Society Organizations (CSOs) such as ActionAid, the official pointed out that developing countries lost three times more to tax havens than they received in aid.

It is estimated that between 1980 and 2009; roughly 1.2 trillion U.S. dollars and 1.4 trillion dollars left Africa in illicit financial flows.

“This amount roughly equals Africa’s current gross domestic product, surpassing by far the total amount of development aid received from outside the continent over the same period,” Busia pointed out.

“Activities such as transfer pricing, trade mis-pricing and over-invoicing in the extractive sector are bleeding Africa off precious tax revenues that could generate jobs, reduce poverty, build stable democracies and eventually transform Africa and make development assistance redundant,” he lamented.

Although he conceded that the challenge was a complex one, he believed that, with a multi-faced approach that included internal collaboration and the strengthening of governance institutions within African states, the battle would be won.

The official also called for the full implementation of international principles such as the EU Directives on Disclosure, the Organization for Economic Cooperation and Development (OECD) guidelines on capital flight, and the U. S. Dodd Frank Act were all necessary and should continue to be fully implemented.

“Ultimately, the challenge can be overcome through internally driven processes such as domestic accountability systems and regional cooperation among African countries,” he insisted.

The more recent data from the Global Financial Integrity released in 2013 exposes the extent of illicit financial flows in Africa between 2002 and 2011.

In the first 30 out of 177 countries surveyed, three African countries, namely Nigeria, South Africa and Sudan, all resource rich countries, were reported to have lost 26.9 billion dollars to illicit financial flows over a 10-year period.

“The AU must therefore pass a Resolution on Guidelines against illicit financial flows and integrate such measures with global efforts like the OECD Guidelines and the G8 conventions,” urged Mohammed Amin Adams, Executive Director for African Center for Energy Policy, conveners of the two-day conference.

He also urged African governments to show commitment to blocking extractive sector revenue leakages, saying they must find innovative ways of maximizing mineral revenues before they are depleted.

Adams expressed misgivings about the decision of Ghana to suspend the introduction of the proposed windfall taxes in the mining sector.

The two-day conference brought together actors from Ghana, Kenya, Sierra Leone, Mozambique, Uganda, and Tanzania to discuss issues of resource taxes, capital flight and illicit financial flows from Africa’s extractive industries.

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EARLIER REPORT:

Africa urged to build fair taxation systems to curb wealth inequality

HARARE (Xinhua) — Unprecedented economic growth in many African countries was going hand in hand with soaring inequality, which national tax systems were failing to address, a latest report reveals.

African governments have been thus urged to build fair taxation systems that address growing income inequality and poverty.

The report “Africa Rising?- Inequalities and the Essential Role of Fair Taxation” was launched at the African Forum and Network on Debt and Development held in Harare on Wednesday.

The report, penned by two NGOs—Tax Justice Network Africa (TJNA-A) and Christian Aid, says that tax is one of the most potent tools at government’s disposal to address inequality, but tax systems in many African countries do not currently fulfill that function.

Instead, the current taxation systems disadvantage the poor. Tax dodging and illicit financial flows facilitated by off-shore secrecy have undermined the distributive role of taxation, the report says. “There was evidence that in many cases growth was taking place at the expense of the poor, who are becoming increasingly impoverished.”

TJN-A spokesperson Alvin Mosioma said the findings reflect the inability of governments to tax the proceeds of growth either because much is given in corporate tax breaks or has escaped offshore into tax havens.

He said inequality had been worsened by the growth model in many countries which has largely seen a concentration of income.

The report builds on an earlier study conducted by AFRODAD, which urged the Zimbabwean government to balance between the need to raise revenue and alleviate the plight of the poor.

AFRODAD executive director, Collins Magalasi, urged African governments to embrace global cooperation in nipping tax dodging and its vices of transfer-pricing and trade mis-invoicing in the bud.

“African governments also need to prioritize the building of fair taxation systems as one surest way of enhancing Africa’s domestic resource mobilization efforts towards financing for development that will ensure and end to inequality and the scourge of poverty,” Magalasi said.

The report investigates income inequality in eight sub-Saharan countries of Ghana, Kenya, Malawi, Nigeria, Sierra Leone, South Africa, Zambia and Zimbabwe.

It also examines the ability of the tax system in each country to redistribute wealth compared to international taxation systems.

Credit: CoastWeek