Africa Loses $14B Annually In Tax Evasion, Undermines Growth Of Economies

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Written by Kevin Mwanza

African countries lose billions of dollars in tax evasion schemes, which are undermining the growth of economies on the continent, scaring away investors and creating unequal opportunities across the continent.

The continent, which is the least developed globally, loses about $14 billion in tax evasion annually, according to a report published by Oxfam.

The money could be used to save four million children from early mortality and employ enough teachers to help educate the African child.

Transfer mispricing, where a local company sells or buys goods or services to a related company overseas at undervalued or overvalued prices to evade paying taxes, is in many cases used to disguise the true value of goods or services shifted out of African nations.

Most countries lack legislation to address transfer mispricing by multinational companies and few registered taxpayers compared to the potential number of people who should be remitting taxes, according to the Africa Tax Outlook Report published in July.

The research was conducted in fifteen nations, Burundi, Cameroon, Gambia, Kenya, Lesotho, Mauritius, Rwanda, Senegal, Seychelles, Swaziland, Tanzania, Togo, Uganda, Zimbabwe and South Africa.

It was the first ever report by African nations to assess and compare revenue collection systems.

Transfer pricing by multinational companies and the existence of offshore tax havens like Panama Islands are key avenues that are used to evade taxation.

The continent has about 30 percent of its wealth hidden in offshore tax havens, Vox reported. The existence of offshore bank accounts are a major contributor to the high levels of inequality in Africa.

Multinational companies with affiliates in different countries trade in goods, services and engage in financial deals that are ‘controlled’. The prices of the goods and financial transactions are falsely dropped or hiked to shift profits between the affiliate companies and escape paying taxes.

At least 60 percent of international trade happens within multinational companies rather than between them, further making the vice a nightmare to tax authorities across the continent.

Most multinational companies ship their profits from the countries of operations into other nations where the tax rates are low, such as Mauritius, Namibia and Lesotho, which is one of the poorest nations in the world.

The practice has denied African nations the much-needed profits and reduced the amount of capital available to this nations to support development projects, according to United Nations Conference on African Development (UNCTAD).

Africa loses about $50 billion through illicit financial flows have also been a major contributor to the loss of revenue through manipulation of gaps in the taxation systems, Enca reported.

Several countries have however adopted measures to improve their taxation systems and reduce the cost of tax administration, read the report.

Kenya, Cameroon, Rwanda, Mauritius, South Africa and Tanzania have introduced electronic and online tax payment systems.