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By MARTIN KAPENDE
AFRICA, Europe and the United States of America are working up to the realities of illegal financial flows. Leaders in the three continents are frantically making attempts to plug the tax loopholes so that they can collect more revenue for development.
The United Nations Economic Commission for Africa (UNECA) and the African Union (AU) are very alive to this fact and last year, they formed a high level panel on illicit financial flows to try and address this very complex problem.
The panel was inaugurated in February 2012 to address the debilitating problem of illegal financial outflows from Africa and elsewhere.
The illegal financial out flows from Africa are estimated at US$50 billion a year. The panel chaired by former South African President Thabo Mbeki will be composed of nine other members from Africa and outside the continent.
In the United Kingdom British Prime Minister David Cameron has vowed to sweep tax secrecy in Britain and he was getting ready to urge other world leaders to set up global standards to tackle tax avoidance and evasion.
Mr Cameron is expected to call for a tax crackdown when he meets leaders from overseas territories and crown dependencies this weekend. The summit is coming a week before the G8 meeting where the issue of lack of tax compliance is also one of main items on the agenda.
Back home in Zambia, former South African President Thabo Mbeki was this week chairing a two-day high level closed door meeting on illegal financial flows in Lusaka starting from Monday.
A statement issued by UNECA communications officer Sampa Kangwa-Wilkie announcing this very important meeting said over 60 delegates from East and Southern Africa were expected to attend the meeting. It is very important because Africa needs this money to lift people out of poverty.
I also feel it is a very timely meeting, coming after various revelations of how some multinationals operating here have reaped billions from Zambia by cheating the government out of axes.
Zambia will from May 16, 2013 implement a law aimed at curbing tax avoidance by foreign investors. This follows the signing of a Statutory Instrument by Finance minister Alexander Chikwanda.
At a time when almost 64 percent of Zambians are wallowing in debilitating poverty it is immoral that some multinationals are reaping us on taxes when we need the money for schools, clinics, better roads and other social infrastructure to improve the well-being of our people.
A report in the Globe and Mail on line this year said almost US$9-billion was illicitly siphoned out of Zambia over the last decade. This revelation was made by a U.S.A anti-graft watchdog, which highlighted how resource wealth is often stolen from the developing world.
This amount is almost half the size of Zambia’s current gross domestic product.
I am hoping that by the time the high level meeting ends this week in Lusaka, the panel of specialists and eminent persons would have come up with practical measures to see how the continent can address the pressing problem.
Once the scourge is stopped or significantly reduced, countries like Zambia will have more resources for development.
Illegal financial flows include, tranfer pricing, undocumented commercial transactions and criminal activities characterised by over pricing cost of production, tax evasion and false declarations facilitated by about 60 international tax havens and secret jurisdictions.
According to Ms Kangwa-Wilkie other techniques used include money laundering, and corruption. “Illicit financial flows are a global problem” she said.
These tax havens enable multinationals to run disguised corporations, shell companies, anonymous trust accounts and fake charitable foundations.
In Zambia, we have already read about ActionAid, a charitable civil society organization in the UK accuse Zambia Sugar of avoiding to pay tax in Zambia by paying a “shell” firm in one of a tax havens and claim that they are paying management fees although Zambia sugar denied the reports.
Mopani Copper mines which is owned by Glencore of Switzerland was also accused of avoiding tax but it also refuted the claims based on a report by reputable auditing firm, Grant Thornton.
The Lusaka meeting is therefore very crucial in finding solutions to this problem of tax cheating. The effects of tax avoidance and evasion are huge and are a threat to not just global Africa’s governance and economic development but to the rest of the world.
As Ms Kangwa-Wilkie has noted other effects of illicit financial outflows are the draining of foreign exchange reserves, less tax collection, discouraging investment inflows and worsening poverty.
She notes that current evidence shows that Africa lost over US$ 854 billion in illicit financial flows between 1970 and 2008 corresponding to a yearly average of about US$22 billion,” she said. The trend has been increasing over time and especially in the last decade, with an annual average illicit financial flow of US$ 50 billion between 2000 and 2008 against a yearly average of only US$ 9 billion for the period 1970-1999.
All these outflows of capital could be channeled towards development. This is why it is encouraging that government has taken measure to address this challenge because one key manner to achieving success is the adoption of laws, regulations and promoting transparent financial transactions like the Zambian government has done.
For now we shall wait for the outcome of the Lusaka meeting and also hopefully see positive out comes when statutory instrument number 16 is implemented.
The author is a Editorial Editor at Zambia Daily Mail
