African countries have made significant strides in strengthening their tax administrations to recover funds held offshore, directly boosting national tax revenues, according to the latest Tax Transparency in Africa report.
The report notes that since 2019, illicit financial flows out of Africa have consistently trended downwards. This reflects sustained improvement in the fight, which is worth an estimated $50 billion each year.
Mainly, the report scrutinises the progress of African countries on tax transparency on two fronts; Tax transparency and Exchange of Information (EOI) to tackle tax evasion.
Meanwhile, tax Transparency in Africa 2021 shows significant progress made on the two pillars of the Africa Initiative; raising political awareness and commitment in Africa; and developing capacities in African countries in tax transparency and exchange of information.
Since its inception in 2019, it has been jointly published by the Global Forum for Transparency and Exchange of Information for Tax Purposes, the African Union and the African Tax Administration Forum in close partnership with the African Development Bank.
The report is a timely contribution to the dialogue on tax transparency in Africa. Gradually, African economies are showing up towards making improvements in domestic resource mobilization efforts and tracking tax evasion.
H.E. Mr Albert M. Muchanga, the Commissioner for Economic Development, Trade, Industry and Mining, African Union Commission commented that:
“… Strengthening African tax administrations’ ability to better tackle tax evasion and increase tax revenues is a shared responsibility between decision-makers and tax officials.
“The former need to be aware of the benefit of tax transparency in the fight against tax evasion and illicit financial flows to take the necessary commitments and provide the needed resources. The latter need to develop their skills and capacity to ensure a culture of EOI in tax administrations’ operations.”
H.E. Mr Albert M. Muchanga
Tackling illicit financial flows for 2020
In spite of disruptions caused by the Covid-19 crisis, there have been advances in transparency. Mali joined the Global Forum, bringing to 32 the number of African members. Eswatini became a signatory to the Yaounde Declaration on fighting illicit financial flows in Africa. In 2020, African countries for the first time sent more exchange of information requests than they received.
While the progress in the use of tax transparency and Exchange of Information appear to be encouraging, the outcomes are uneven among countries. The report notes that countries that are older members of the Global Forum are far advanced in their progress. More so, this is in line with the implementation of standards as compared to newer members.
That said, Exchange of Information requests made by African countries increased, thereby translating into additional tax revenue. For instance, in 2020, two African countries identified over US$ 43 million (EUR 34.7 million) of additional tax emanating from the direct consequence of the requests sent.
In total, since 2009, EOI has enabled African countries to identify over EUR 1.2 billion of additional revenues (tax, interest and penalties) through offshore tax investigations.
Towards implementing international standards, six African countries have undergone the second round of peer reviews for exchange of information on request since 2016; Mauritius was rated as “Compliant”, Tunisia as “Largely Compliant” and Botswana, Ghana, Liberia and Seychelles as “Partially Compliant”.
Nonetheless, African countries must continue on this trajectory, and not relent in their efforts of blocking loopholes in their individual tax administration systems, as the benefits I so doing are enormous.
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