Africa Loses $334bn Annually To Capital Flight

The Chair, Tax Justice Network, Africa (JTN), Dr. Dereje Alemayehu, has estimated that Africa loses about $333.778 billion annually due to capital flight and other illicit transactions.

Alemayehu stated this in a recent presentation titled: ‘Illicit financial flows: The Cost of Tax Evasion,’ in Kampala, Uganda.

He described capital flight as the unrecorded and (mostly) untaxed illicit leakage of capital and resources out of a country as well as domestic wealth that is permanently put beyond the reach of appropriate domestic authorities, mostly because of deliberate mis-reporting.

The JTN boss expressed concern that outflows from Africa was on the increase compared with other regions. This he put at 22.3 per cent, saying that trade mis-pricing was the biggest contributor to illicit outflow from the continent.

“According to the finding, for every one dollar coming into Africa in the form of official development aid, ten dollars flows out of Africa. That more resources flow out of Africa than they come in, is now an established fact. Our agenda is to stop the leakage. We are not against money coming into Africa, but we are against the leakage of resources from Africa,” he said.

He declared that capital flight due to trade mis-pricing alone between 2005 and 2007 had resulted in £190.8 billion global tax losses.
Alemayehu added: “Poor countries are deprived of badly needed tax revenues. Christian Aid has estimated that the loss is to the tune of $160 billion a year - much higher than the money required for the Millennium Development Goals (MDGs).”

He described tax leakage as “tax due on income earned by multinationals and then moved offshore without paying appropriate tax; tax due on income earned from assets which are held offshore; tax expenditures and tax due, but not paid – due to corruption, weak enforcement mechanisms; low tax revenue collection capacity, exemptions and privileges granted through patronage system”.

According to him, this form of malpractice can be carried out through, “falsified invoicing; inflating or undervaluing prices to increase costs and diminish tax liability and round-tripping – businesses operating in a country send their money offshore and bring it back disguised as foreign investment to get preferential tax treatment.”

He advised policymakers in the continent to recognise the stoppage of resource leakages as one of the major means of mobilising domestic resources for development and also to extend the fight against corruption to focus on “supply side” of corruption.

Alemayehu also canvassed “regional and continental tax cooperation and policy harmonisation to avoid race to the bottom tax competition, and safeguard African interest in international taxation dialogue, transparency in investment contracting and scrutiny of oversight institutions and to revisit capital account liberalisation and financial deregulation”.