PHOTO CREDITS: Tax Justice Network
By
Chenai Mukumba and Rachel Etter-Phoya
Illicit financial flows punch holes in the public purse across the African continent. Over the past five decades Africa has lost in excess of US$ 1 trillion in illicit financial flows. This amount dwarfed Africa’s receipts of overseas development assistance during this period and also exceeded foreign direct investment into Africa.
Two-thirds of corporate tax abuse, which forms a substantial part of illicit financial flows, is enabled by member countries of the Organisation for Economic Co-operation and Development (OECD), which is the leading rule-maker on international tax. This was revealed in the biennial Corporate Tax Haven Index 2021 published by the Tax Justice Network. The index exposes how this club of rich countries has created a system that allows multinational companies to pay less taxes in the countries where they should with direct effects on developing countries’ tax revenues.
According to Lyla Latif, Managing Director of the University of Nairobi’s Journal on Financing for Development and Director of the African Centre for Tax and Governance, “African countries inherited a tax system put in place by some of the old powers assembled today as the Organisation for Economic Cooperation and Development (OECD)”. She explains that:
“This system, which is at play today, based its entire tax philosophy around mobilisation of taxable income, regardless of where it was sourced from resident countries. This, by design, embedded inequality within the international tax regime in which African states have become vulnerable and open to the scramble for tax. Such vulnerability expressed in the form of base erosion and profit shifting, is largely responsible for the removal of the provision of social services and welfare from the centre of the post-colonial African government’s fiscal obligation to its taxpayers.”
Transforming the current international tax system will go a long way to ensuring African governments can protect the rights of citizens and fill half of the financing gap to achieve the Sustainable Development Goals.
