Regional integrated tax systems needed to curb illicit financial flows

By Patrick Jaramogi

African states have the capacity to fully finance their budgets, if they can tame the illicit financial flows that is crippling the continent’s economic development, experts have advised.

Africa’s leading economists and trade analysts noted that the rampant “illicit financial flows’ was paying a heavy toll in draining and crippling of the African economies.

“Illicit financial flow” is the secret and illegal movement or transfer of money from one jurisdiction to another. The term alsorefers to money that leaves the continent instead of being used to finance development.

Such monies may be proceeds from corruption, smuggling, organized crime, tax evasion, money laundering, and international trade manipulations.

“Every single dollar that leaves the continent is a dollar lost to investment opportunities in education, agriculture and health,” said John Ochola a Tax and Extractive Sector in Africa expert. Ochola said East African countries have the capacity to finance their own budgets and stop relying on donor aid.

“Years back we never used to import second hand clothes because we had functional and vibrant textile industries coupled with a vibrant cotton growing communities,” he said.

According to statistics, African economies have in just three decades lost between $597 billion and $1.4 trillion in illicit financial flows.

“We can fully fund our own budgets if we can check on the illicit financial flows and the tax evasion by leading multinational companies,” said Alvin Mosioma the director Tax Justice Network Africa (TJN-A).

Speaking during a three day Tax justice Network Africa training at the Lake Naivasha Panorama Hotel in Kenya on Thursday, Musioma said EAC
states need to fast track the illicit financial flows and tame the foreign firms that dodge tax and remit profits to their countries of origin.

He pointed out that the plunder of finances by these firms has led to missed development opportunities, increased poverty, and continued injustice.

Joel Odigie, the International Trade Union Confederation (ITUC) Africa boss observed that the unprecedented economic growth experienced in many African nations was due to illicit financial flows (IFFs).

“We need stop lamenting and start acting. African states should desist from the begging syndrome and use the vast resources to fund their own budget,” he told the meeting that draw over 60 participants from Kenya, Tanzania, Rwanda, Uganda, Mozambique, Ghana, Nigeria, Cameroon, Zambia, Zimbabwe, the US, Canada and UK.

Odigie noted that poorly enforced financial regulatory frameworks was the main cause of the rampant Illicit Financial Flows.

“The weak and non-harmonized taxing regimes, international trade mispricing, fraudulent public procurement procedures coupled with a well- organized and sophisticated chain of multinational criminal networks is the cause for Illicit financial flows” he said.

Nelly Busingye the SEATINI- Uganda program officer tasked the meeting to highlight mechanisms how EAC states can curb the tax evasion by the multinational firms.

“We have very many multinational firms who we suspect are evading tax but we need mechanisms of how to engage them to pay taxes so that the local tax payers are not over burdened by paying tax,” said Busingye.

Alvin Musioma the Tax Justice Africa director said the multinational firms are very elusive to be tracked.

“These people don’t work alone. They are supported leading top officials and very smart lawyer and commercial banks because they don’t take this money out in briefcases but wire them out through the banks,” he said.

Musioma noted that African states must harmonise their laws to track on IFF coupled with addressing the corruption. The experts recommended that collaboration is paramount if actions is to be taken to counter IFFs.

The meeting called for the strengthening of tax administration and enforcement of regionally integrated systems tax administration systems.