Africa Has Once-in-a-Generation Chance to Rewrite Global Tax Rules
She said the flows are enabled by a global offshore system of tax havens and secrecy jurisdictions with lower tax rates that hide real company owners.
JOHANNESBURG, South Africa — African nations have a once-in-a-generation opportunity to rewrite century-old global tax rules that were designed without their input, a tax justice expert said in an exclusive interview, writes Winston Mwale.
Rachel Etter-Phoya, senior researcher with the Tax Justice Network and research fellow at the University of St Andrews, told AfricaBrief that the upcoming U.N. Framework Convention on International Tax Cooperation could transform how multinational corporations are taxed.
“African countries were not independent, so they did not write the rules,” Etter-Phoya said Thursday on the sidelines of the Pan-African Conference on Illicit Financial Flows and Taxation.
“And now it’s an opportunity for African countries. A once-in-a-generational opportunity to rewrite the tax rules.”
The conference marks 10 years since the Mbeki panel report established that most illicit financial flows from Africa result from tax evasion and avoidance by multinational companies rather than corruption or crime.
“That panel clearly established that the main means of illicit financial flows from the continent is through tax evasion and tax avoidance of multinational companies, especially by multinational companies that do not pay their fair share domestically,” Etter-Phoya said.
She said the flows are enabled by a global offshore system of tax havens and secrecy jurisdictions with lower tax rates that hide real company owners.
The Tax Justice Network’s State of Tax Justice report shows European and North American countries lose more in absolute figures, but the impact on African countries is greater relative to health budgets.
“It is a global problem,” Etter-Phoya said.
“In the past 10 years, there has now been a recognition that this is a problem and that it is also tax motivated.”
Progress includes what Etter-Phoya called the ABCs of tax justice: automatic exchange of information between tax authorities, beneficial ownership disclosure revealing real company owners, and country-by-country reporting showing where companies book profits and pay taxes.
“Although it’s positive, it’s not gone as far as it needs to be,” she said.
“African countries are often not able to join the processes, and they have not benefited to the extent that we’ve seen.”
She said current tax rules were established over 100 years ago by countries hosting multinational companies, former colonisers, when African countries were not independent.
Some of Malawi’s tax treaties date to the 1950s, including one with the U.K. signed before independence, Etter-Phoya noted.
She said the Anti-IFFs Policy Tracker, launched Wednesday by Tax Justice Network Africa, the African Union, and the African Tax Administration Forum, helps countries address domestic policy gaps.
“Countries using the anti-IFF policy tracker take seriously the policies that need to be in place at the domestic level to tackle illicit financial flows,” Etter-Phoya said.
She said countries must stop giving tax incentives on profits and instead incentivise industries that transform economies through clear cost-benefit analysis.
“We shouldn’t be giving them out without doing a clear cost-benefit analysis,” she said.
Etter-Phoya acknowledged challenges to implementation, citing both political and technical obstacles.
“Obviously, as Malawi, we can introduce or improve our rules to prevent tax avoidance, to audit companies to make sure profits aren’t being shifted, and to renegotiate tax treaties so we don’t give taxing rights to other countries,” she said.
But she said political financing from large companies, sometimes perpetrating tax abuse, complicates reform.
“A lot of the time, the financing for political parties is from the largest companies that are sometimes the perpetrators of this tax abuse,” Etter-Phoya said.
She called for citizen pressure and awareness among political elites.
“I think it’s partly us as citizens that need to be demanding this more,” she said.
Etter-Phoya said quantifying the scale of illicit flows is crucial.
“If you don’t know the scale of it and where the risky flows for your country are—is it through customs, is it through imports and exports, or is it through the network of subsidiaries to tax havens and secrecy jurisdictions or ladening the subsidiaries with debt—what is it?” she said.
She said negotiations will continue in Nairobi in November.
“African countries need to remain resolute and together and to continue to bring the political and technical together,” Etter-Phoya said.
“So as much as this is a technical issue, we need the ministries of finance that set tax policy to be there. They also need to be working hand in hand with the foreign affairs representatives who will be participating in those negotiations.”
The Sustainable Development Goals recognise that illicit financial flows undermine the right to development and access to schools, hospitals and infrastructure needed for structural transformation and industrialisation.
The four-day conference continues through Friday at the Sandton Convention Centre.
It is co-hosted by the African Union Commission, the UN Economic Commission for Africa, the Africa Tax Administration Forum, Tax Justice Network Africa and the Economic Justice Network.
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