Africa grappling with $89 billion annual revenue drain from illicit financial flows

In a landmark address at the 11th Pan-African Conference on Illicit Financial Flows and Taxation (PAC) in Accra on November 22, 2023, H.E. Ambassador Albert Muchnaga, Commissioner for Trade and Industry of the African Union Commission, sounded a clarion call on the pressing issue of illicit financial flows plaguing the continent.

Unveiling a staggering annual estimate of $89 billion, equivalent to 3.7% of Africa’s GDP, H.E. Muchnaga attributed this economic hemorrhage to frail domestic tax revenue regimes.

Highlighting a stark contrast, H.E. Muchnaga underscored that the revenue-to-GDP ratio in most African nations languishes at approximately 18%, while developed counterparts boast figures as high as 35%.

In his address, he emphatically stressed the imperative of fortifying tax administration capabilities to ensure timely collection of domestic levies.

“The issue of domestic resource mobilisation should be one of the key strategic issues that African must address,” he added.

Domestic resource mobilization took center stage as H.E. Muchnaga positioned it as a linchpin in Africa’s economic strategy.

The Commissioner urged a critical examination of business incentives that impact fiscal structures, urging tax experts at the Conference to navigate the delicate balance of attracting foreign direct investment (FDI) without compromising revenue integrity.

“So your (tax experts) task is how to make sure that we (African governments) are able to provide incentives without necessarily undermining our revenue base, as we try to attract FDI from foreign investors,” he charged tax experts at the Conference.

Incentives to foreign businesses are said to cost African governments some $220bn annually.

Africa per recent data, illicit financial flows out of Africa are twice the financial aid and foreign investments received from developed countries and businesses, making Africa a net creditor to the world.

According to the  Tax Justice Network Africa (TJNA) and the African Tax Administration Forum (ATAF), current tax laws deprive Africa of $3bn in revenue from the three (3) big tech firms alone which can be used in various sectors of African economies.

Currently, African leaders are in negotiations in New York with leaders of the world for the need to democratise the global tax infrastructure to benefit Africa, but there is however a pushback from Western leaders, as there are interests to maintain the status quo.

The Tax Justice Network Africa (TJNA) and the African Tax Administration Forum (ATAF) are therefore calling for the reform of the global tax system to the benefit of Africa.

PAC is an annual event convened by Tax Justice Network Africa (TJNA) in collaboration with its partners. The event facilitates alignment and collaboration among African civil society organisations (CSOs), pan-African Institutions and government agencies.

The 3-day meeting brings together over 100 stakeholders working on tax issues from Pan-African Organizations, tax administrations, ministries of Finance, civil society organisations, parliamentarians, and academia/researchers to explore ways in which African countries can take the lead on international conversations that are beginning to have direct implications on issues relating to domestic resource mobilisation and illicit financial flows.

Source:norvanreports