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Illicit Financial Flows Higher Than Official Aid To Africa

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Africa’s tax administrators and policy makers should work together to transform tax systems for Africa to fund its own development needs through tax revenues says Dr. Uzziel Ndagijimana, Rwanda’s  Minister of Finance and Economic Planning.

Minister Ndagijimana made the remarks on Monday at the Africa Tax Administration Forum (ATAF) high-level dialogue, a two-day conference which brings together key stakeholders at both policy and administration levels to form a proposed network that will ensure coordinated tax policy and tax administration decisions and actions in the ever-changing global tax environment.

“You should set a clear roadmap on how the continent will undertake the tax transformation agenda by paying more attention on how tax policies are made, effectiveness and efficiency of tax administration as well as collaboration of different key players,” Minister Ndagijimana said.

Minister Ndagijimana revealed that “The level of resources lost through Illicit financial flows are higher than the official aid received by Africa.” He said that Africa’s tax to GDP ratio is below 18% , adding that it loses over US$ 50 billion in illicit financial flows.

“We will not develop at the rate we wish, if we are not able to mobilize domestic resources in a more effective manner,” he warned.

“For Africa to improve its tax position, we must act now to improve both our tax policies and the capacity of tax administrations. This will reduce our dependence on foreign aid, drainage of Africa’s resources; increase our domestic investments, job creation and ultimately economic growth,” added Minister Ndagijimana.

ATAF Executive Secretary Logan Wort said that “Redesigning tax policies and building capable tax administration will be crucial in plugging illicit financial flows and increasing resources mobilization.

At ATAF we have championed increased tax policy dialogue to try and bridge the impact of Africa tax policies with the output of tax administration.”

Challenges

According to the Commissioner General of Rwanda Revenue Authority, Richard Tusabe, tax systems in Africa face numerous challenges including deficiencies in domestic tax laws, limited exchange of information networks, poorly negotiated treaties and capacity constraints within tax administration among others.

He further noted that loopholes in tax laws and inadequate international tax cooperation has helped multinationals to shift profits to other jurisdictions leaving Africa with low tax revenues.

To address these issues, Tusabe called for adherence to international standards on tackling tax avoidance as well as promoting transparency and information sharing.

“We should enact strong and effective legislation that takes into account the difference between countries tax rules and those of major trading partners to minimize chances of creating mismatches in tax laws. We need to identify areas that are relevant to our situation not only in regard to global standards setting but in actual implementation of the standards,” Tusabe said.

Under the Agenda 2063, Africa committed to strengthen domestic resource mobilization, build continental capital markets and financial institutions, and reverse the illicit flows of capital from the continent, in order to: Build effective, transparent and harmonized tax and revenue collection systems; Reduce aid dependency; Enhance domestic savings and eliminate all forms of illicit flows.

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