Finance Uncovered (FU), a network of investigative journalists on illicit financial flows, has said African countries, including Malawi, are losing millions of dollars in tax revenue from some multinational firms operating on the continent.
FU founding partner George Turner said this yesterday in Cape Town, South Africa during the opening of the Tax Justice Network-Africa Media Training on Tax and Illicit Financial Flows (IFF) and its impact on Africa’s development.
He said in a multinational company, transactions between investors, suppliers, and sometimes customers, result in the creation of transactions which in many situations have led to trade mis-invoicing and profit shifting which impact on tax.
Said Turner: “When profits are shifted, the parent company still gains in revenue without that revenue appearing as taxable profits for the subsidiary.
“A lot of multinationals have been involved in this malpractice either illegally or for ethical reasons. This
has greatly impacted on the revenue collection of the poor African States.”
A recent World Bank study of IFF in Malawi and Namibia titled Ill-gotten Money and the Economy: Experiences from Malawi and Namibia, estimated that revenue lost to corruption and tax evasion is between five percent and 10 percent of gross domestic product (GDP), the broadest measure of the economy’s output.
According to United Nations Economic Commission for Africa (Uneca), IFF out of Africa have become a matter of major concern because of the scale and negative impact they have on Africa’s development and governance agenda. The continent loses about $50 billion (about K36 trillion) per annum.
Turner emphasised on the need for African countries to put in place regulations that would ensure that systems are put in place to check the situation.
He said in as much as it is good for a country to woo foreign investors, there is need for African States to undertake thorough analysis on the businesses before striking business deals for the betterment of its citizens.
Turner also advised African States to scale up efforts in ensuring that authorities look at comparable goods and see whether prices are fair.
Speaking earlier, media scholar Khadija Sharife said African governments are losing out because deals being made with international businesses only favour a few individuals in the short-term.
She stressed the need for multinational companies to report their finances country-by-country to curb IFFs, adding that multinational companies are not required to break their reporting down between each country in which they operate.
Sharife said tax injustices undermine and deprive the realisation of human rights and the provision of public services such as health, and education.
These tax injustices are facilitated by the structure of the global economy, stressing that the primary cause of tax injustice occurs through secrecy jurisdictions facilitating illicit and illegal activity such as corporate tax avoidance. n