African countries have been urged to begin a holistic review of all trade and tax laws as well as international trade treaties entered into in the last decades.
The call came at the ongoing pan-African Conference on Illicit Financial Flows from Africa, where it was disclosed that Africa loses over $50 billion to multinationals who take advantage of weak tax laws and unfair trade treaties.
The two-day conference organised by Tax Justice Network Africa in Nairobi, Kenya is aimed at redefining and recalculating IFFs from Africa and pushing for implementation of recommendations.
In an interview with the News Agency of Nigeria on the sidelines of the conference, Jason Braganza, the Deputy Executive Director, TJNA, said Africa was yet to ascertain the real amount being lost to IFFs as the quoted $50 billion was just a fraction of the entire sum.
Braganza said the conference was part of efforts to broaden Africa’s approach at defining and calculating illicit financial flows with a view to stopping them.
Braganza said there were a number of ways through which multinational companies cheated African countries, taking advantage of weak laws and policies without breaking them.
He said: “When we talk about broadening the definition, what we mean is the need to come up with an approach that includes aggressive tax planning by high net worth individuals as well as big multinational corporations who engage in harmful tax practices in order to maximise their profits.
“They take advantage of weak tax policies and tax laws in many African countries, which make the countries vulnerable to these multinationals who are able to manipulate the laws without breaking them.
“Therefore taking away the profits from where they are generated and moved to other tax jurisdictions like offshore tax havens where there is high level of secrecy and tax laws are in favour of multinationals.
“The way businesses conduct their activities, the international financial architecture is very fractured, fractured in the sense that the complexity of operating tools and models for business transactions means that one single business can have over 100 subsidiaries or special purpose vehicles.
“This sort of arrangement provides them with the platform to hide or not fully reveal the kind of activities they have been undertaking, the kind of incomes they are making.
“They are able to hide what they are supposed to be paying to government, this is a big problem.”
Braganza said the illicit ways high net worth individuals and corporations were exploiting weak existing laws, policies and legislation was having a detrimental impact on government ability to collect revenue.
He said also that it significantly impacted on the government’s ability to implement development projects.
He therefore advised African countries to review their laws to check such excesses by Braganza said also there were weak laws that allowed multinationals to trade within themselves and either charge lower or higher rates to evade tax liability.
He said the law review should also include transparency in transactions and audit reports adding that African countries must collaborate to check the activities of these companies.
He also called for review of all trade treaties, especially those entered into for decades and were not beneficial to Africa, but to the western nations.
Braganza said: “There are a number of laws, policies and strategies that need to be strengthened in order to avoid and close these loops.
“In Uganda for instance, the government has taken the decision to suspend the negotiation of new treaties pending a review of all existing treaties to understand what exactly is contained in these treaties.
“You can go even in the case of Kenya, there are treaties that dates back to the 70s that have never been analysed for people to understand what the country has signed itself up for.
“The first step is to really appreciate that some of the treaties that were signed several decades ago are harmful and detrimental to the economies.
“The second point is for members of parliament to get involved in this conversation and be part of the negotiation process that governments enter into and not leave it only to technocrats or bureaucrats.
“This is because the lawmakers are the ones who pass laws that have significant impact on how a government or an economy can run.”
Braganza also called on African governments to show more political commitments to implement recommendations that had already been made on these issues.
He said: “The high level panel is a good example, they have made very good set of recommendations that can actually help African governments to try and stop IFFs, to better improve the way they negotiate treaties.
“The African Tax Administrative Forum is another platform where governments should sign on, because ATAF is responsible and involved in developing legislation and policy guidelines for Africa perspective.
“So we advice that African countries review all trade treaties but most importantly, implement the recommendations that they have signed up to.
“There is a charter that all heads of state of AU have signed up to, committing themselves to working with their members of parliament to try and curb IFFs.”
Braganza said TJNA had also been engaging parliaments from different African countries to build their skills to understand the technicality of some of these issues so as to inform their law making process.
He added that TJNA had a specific programme, African Parliamentary Network on Illicit Financial Flows and Tax which was dedicated to working with lawmakers across the continent.