Johannesburg - Finance Minister Pravin Gordhan said yesterday that illicit financial flows, tax evasion and transfer pricing were major contributors to South Africa’s and Africa’s tax gap.
Gordhan told delegates from more than 30 countries at the high level two-day conference on Illicit Financial Flows: Inter-Agency Co-operation and Good Tax Governance in Africa, held at the University of Pretoria, that illicit flows were a threat to the continent’s development agenda.
“Tax evasion, illicit financial flows and transfer pricing are contributors to the tax gap in any country and the extent to which they are uncontrolled undermines the fiscal capacity of the various countries,” he said. Last year former president Thabo Mbeki told the Pan African parliament that the illicit flows cost Africa $1 trillion (R14trln) over 50 years.
Prime suspects
Mbeki, who first investigated the illicit financial flows for the AU in 2012, said multinational corporations were the prime suspects in the trade and that illegal drug trafficking accounted for almost 30 percent of the money.
In his Budget speech delivered in February, Gordhan said with effect from next year international agreements on information sharing would enable tax authorities to act more effectively against illicit flows and abusive practices by multinational corporations and wealthy individuals.
Capital flight not only drains domestic wealth, but it also exacerbates inequality and facilitates crime and corruption. In 2014, French bank BNP Paribas was fined $8.9 billion after being found guilty in 2014 for transferring billions of dollars on behalf of Sudan and other countries blacklisted by the US in one of the biggest financial illicit cases to date.
A research by the Global Financial Integrity, which used Ghana, Kenya, Mozambique, Tanzania and Uganda as case studies, found that trade misinvoicing was a significant source of illicit outflows and inflows of capital in each country. The International Monetary Fund said governments should significantly boost customs enforcement by providing appropriate training and equipment to better detect the intentional misinvoicing of trade transactions.
Gordhan said Africa lost about $50bn annually to illicit financial flows and this compromised the continent’s ability to provide economic and human development.
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