Africa loses US$38b to tax evasion - report

The Africa Progress Panel has reported that Africa loses over US$38billion of its tax revenue to trade mispricing (a form of tax evasion), a figure higher than aid received by the continent from OECD countries.

This, the report states, is hampering progress of the African continent and making the region investor-phobic; as well as creating unequal opportunities for citizens on the continent.

“While business governance has been steadily improving in Africa, corruption and lack of transparency remain pervasive concerns, undermining social, economic and political progress at many levels.

“For ordinary Africans who are obliged to pay illegal charges for education, health or the marketing of goods, corruption is a source of diminished opportunity. For investors, corruption raises the cost of doing business, with damaging consequences for economic efficiency and job-creation. And corruption has corrosive effects on political systems, making it possible for leaders to use their office in the pursuit of private gain rather than the public good.

“Trade mispricing alone is estimated to have cost Africa on average US$38billion annually between 2008 and 2010 – more than the region received in bilateral aid from OECD donors. Put differently, Africa could double aid by eliminating unfair pricing practices,” the report stated.

The report further urged African governments to take bold steps in combatting the canker, and also strengthen institutions to keep the practice in check.

“Tax evasion continues to erode the revenue base for public finance in many countries. It is impossible to quantify the scale of the problem. However, high levels of intra-company trade create extensive scope for trade ‘mispricing’, enabling companies to report profits in low-tax jurisdictions; and the extensive use of offshore companies and shell companies makes it difficult for African tax authorities to assess profits and enforce compliance.

“It is ultimately up to African citizens and governments to combat corruption through their national political systems. However, global and regional initiatives and measurement tools can provide support,” the report added.

Another study by the Global Financial Integrity (GFI) in five African countries (Ghana, Kenya, Mozambique, Tanzania and Uganda) which focused on the tax authorities shows that authorities in all five countries lacked the trade, tax and deals data to curb the illicit flows.

The GFI study revealed that over-invoicing and under-invoicing in the five countries facilitated the illegal inflows or outflows of more than US$60billion during the 10-year period in which the study was carried out (2001-2011).

According to the study, Ghana alone lost more than US$14billion in mis-stated invoices over the entire 10-year period, equivalent to 6.6 percent of GDP—the highest recorded among the five countries studied.

"Trade mis-invoicing is perhaps the most serious economic issue plaguing these countries," GFI president Raymond Baker said in a statement.