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Illicit Financial Flows remain a critical challenge in Africa

LUKENYA, KENYA: Many African countries continue to experience severe illicit financial flows (IFFs) that over the years have crippled their economies due to losses of revenue through the multitude of loopholes that riddle the financial systems.

Sharing their country experiences at the just ended Tax Justice Network (TJN) organised International Tax Justice Academy training workshop held in Lukenya, Kenya, participants expressed concern over countries that hike particular tax creating opportunities for people to shuffle round their assets and income in order to evade paying tax by moving them offshore. It emerged that while tax leakages hit developing countries, Botswana included, they were orchestrated mostly by some private accountants, lawyers, banks and to some extent secrecy tax havens, in the tax planning purposes.

Presenting at the academy, Global Alliance for Tax Justice (GATJ), regional coordinator, Caroline Othim said although tax evasion is illegal in many respects, its avoidance is however acceptable as a respectable way of doing international business. She was however quick to state that in almost all the African countries, there are tax havens that perpetuate high levels of confidentially , to hide income from tax and they continue to shelter criminal tax practices.

Othim stated that it is tax planners who make use of regulatory gaps and loopholes to evade taxation.  “There are tax policies that are often excessively and exclusively influenced by multinationals and international finance institutions (IFIs) and some of these policies include among others, undermining domestic (taxable) industries providing income and employment,” Othim said. Participants generally concurred with Othim, noting that political interference in the tax administration is one of the many causes of the tax leakages.

Among the shared information at the academy was the composition of the IFFs (3 Cs of the IFFs) that showed that corruption raked 5%, that included theft of public assets and bribery. Othim had earlier shared that corruption facilitates illicit financial flows from the other components. Criminal activities took a chunk of 35% that included money laundering, drug trafficking, racketeering, counterfeits and terrorists financing.

The remaining 60% of the IFFs composition went to commercial tax abuse driven by massive cross-border floes of trade and finance, along with technological advances by allowing national and transnational corporations and high networth individuals to use tax haves and aggressive tax planning schemes to dramatically reduce their overall tax burden. According to a report published by Ventures Africa in 2014, Botswana loses millions of dollars yearly to corruption, and tax evasion. This according to the Washington-based Global Financial Integrity (GFI), a non-profit research and advocacy organisation.


report, titled ‘Illicit Financial Flows from Developing Countries’, GFI said the diamond rich Botswana is losing 10 billion Pula ($856 million) per year, and this is made worse by the fact that the country has long abolished exchange controls.

“Illicit financial flows are the most damaging economic problem plaguing the world’s developing and emerging economies. Botswana therefore is not an exception as it struggles with lack of funds to deal with problems of high unemployment, declining diamond revenues and Aids scourge,” said GFI President Raymond Baker in the report. The report says its findings underscore the urgency with which policy makers should address illicit financial flows.

In March last year, in its effort to curb IFFs, Botswana became the eleventh country in Africa to launch a National Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT) Risk Assessment, supported by the World Bank.

Mmegi published a year prior to this affirmative action, that Botswana was listed amongst prone Southern African Development Community (SADC) countries with up to P200 billion estimated to have been moved illegally over 10 years up to 2013, the then Global Financial Integrity (GFI) report showed.

The publication also stated that Botswana was urged by GFI economist, Dev Kar to adopt and fully implement the financial Action Task Force’s anti-money laundering recommendation laws. Kar was quoted urging Botswana officials to disclose of multinational companies to publicly disclose their revenues, profits, losses, sales, taxes paid, and subsidiaries and staff levels on a country-by-country basis.

Still within the IFFs composition, Botswana was hit by multimillion pula money laundering scandal, amounting to P326 million that has since provoked debates around the guarantee of proper management of the tax payers’ money at the National Petroleum Fund (NPF). The matter is currently handled by the Directorate of Corruption and Economic Crime (DCEC) while litigation in the matter is ongoing at Lobatse High Court. The scandal has since exposed some prominent politicians and ministers and businessmen.

The Tax Justice Network training, which targeted Civil Society Organisations (CSOs), journalists, economics and tax scholars, researchers, councils of churches aimed at capacitating tax champions on promoting public awareness regarding tax issues in Africa. It also promoted networking on importance of taxation as a tool for development and enhancing democratic governance and to consolidate the efforts by the CSOs to work on tax.

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