Tax evasion by multinationals tops agenda at Africa economic forum

African countries have taken the first major step in combating tax avoidance estimated to cost the continent over Sh5 trillion annually.

Among the likely outcomes of a task force of experts put together by the Economic Commission for Africa would be uniform laws on cross-border transactions to fight illicit financial flows.

“We now have together a consortium with expertise in different areas including tax matters, lawyers and customs working on modalities to check these illicit outflows,” said Anthony Maruping, the Commissioner for Economic Affairs at the African Union.

Accountants will help the commission in identifying the exact weaknesses exploited by multinational firms to evade taxes, while lawyers are expected to review international tax agreements which aid revenue losses.

Dr Maruping was speaking after the opening of the African Development Week in Addis Ababa, Ethiopia, where planning and finance ministers from the continent are meeting to discuss, among other things, how their countries would respond to the sharp currency depreciation and slump in commodity prices.

“At least 40 ministers will come here to exchange ideas on the humanitarian intervention to steer the economies from international shocks,” he said. He also cited that addressing revenue losses through tax avoidance and evasion was enough to cut reliance on donor support. A standoff pitting Morocco and its breakaway neighbour Western Sahara nearly scuttled the proceedings. Moroccan representatives at the conference caused a three-hour disruption, in an expression of anger over UN Secretary General Ban Ki Moon’s disapproval of the country’s occupation of its southern neighbour.

But after the row eased, it is shortages in tax collections that took centre stage.
Delegations from different countries expressed their frustrations linked to low revenue collections, owing to the crafty means employed by individuals and businesses to avoid taxes.

Tax challenge

“This challenge (of inability to raise sufficient revenues) is of serious concern for the African leadership,” said a delegate from Zambia, echoing views of many other delegates.
A crush in oil, copper and cocoa prices has hit African economies heavily, exposing the poorest the most. While Kenya is largely not a commodity producer and exporter, the shilling also suffered major depreciation last year, to hike the prices of imported commodities including Kerosene.

The anticipated guidelines come months after a high-level panel headed by former South Africa President Thabo Mbeki presented the findings of the revenue leakage from all the countries in the continent. According to the panel findings, more than $50 billion is leaving the continent annually, mainly through abuse of cross-border transactions by multinational corporations.

Mbeki said after releasing the findings last year that the revenue leakages were ‘unacceptable’. Efforts by poor countries to push for the formation of an arm of the United Nations to help address revenues losses however flopped, in what was widely regarded as a win by their richer counterparts.

And by late last year, Mbeki’s panel had commissioned the development of illicit financial flow Web tracker – an application that would follow all major transactions. The tool is also expected to enhance transparency and check on illegal movement of cash out of the Africa.
Multinational firms are accused of leading in the illicit cash transfers, which included profit shifting and transfer mispricing – which ensured that subsidiaries in Africa reported little profit or even losses.