Why Africa must worry over panama papers, by Mbeki

Nigeria Loses Over $3.4b Tax Money
Africa cannot afford to remain unconcerned as the world is confronted with shocking revelations of alleged tax evasion and illicit financial flows from some African countries to safe havens in Europe, former South Africa President Thabo Mbeki has said. This is even as a report suggests that Nigeria may be losing over a trillion naira annually in corporate tax revenues.

Mbeki, who is the chairperson of the African Union (AU) / United Nations Economic Commission for Africa (ECA) High Level Panel (HLP) on Illicit Financial Flows (IFF) from Africa, said it is an undeniable fact that the Illicit Financial Flows, which derive from tax evasion, deserve full attention, both continentally and globally. He, however, explained that: “We should not misconstrue the release of the Panama Papers as a time for celebration or an end in itself. To the contrary, it is rather a time for deep reflection and regret that we have allowed the practice to persist, which is made possible among others by the existence of Tax Havens/Financial Secrecy Jurisdictions.

“Now is the time for the global community to act in a firm and comprehensive manner to end the Illicit Financial Flows and close down the Tax Havens/Financial Secrecy Jurisdictions which serve as the domicile of these Illicit Financial Flows.”

As revealed in the Panama Papers, the fourth most used tax haven by the Panama law firm is an African country. Worse still, the reports show that the firm only knew the identities of the real owners of just 204 of 14,086 companies it had incorporated in this very country. “Indeed, we must not rest under the illusion that the issue of Tax Havens does not directly affect Africa and the world at large”, Mbeki said yesterday in a statement made available to The Guardian.

With an estimated loss of 2.9 billion dollars to corporate income taxes holidays, Nigeria is leading the chart within the West African sub-region. According to a report by the ActionAid, Nigeria is also losing around 327 million dollars annually on import duty exemptions.

The organisation argues that the total sum of the losses from these two sources is money that could be used to provide essential public services that will help eradicate poverty.

In February 2016, G20 Finance Ministers endorsed the OECD initiative in implementing the information technology driven Base Erosion and Profit Sharing Project (BEPS), which enables governments to close gaps in existing international rules that allow corporate profits, upon which corporation taxes are levied to disappear, or to be artificially shifted to low or no tax jurisdictions, where companies have little or no economic activities.

About 90 countries, including Nigeria, are currently involved in the development of multilateral instruments to speed up the process of effecting the new rules, which will involve change to the existing Companies Income Tax Act. According to the OECD, it is estimated that by the time the new IT driven BEPS framework takes effect in June 2016, up to $240 billion representing almost 10 percent of global corporation tax revenues that are currently being lost annually to complex tax avoidance schemes, will start streaming into government purses, especially that of the developing economies that rely on these corporation tax receipts for funding social and developmental programmes.