This is because IFFs have since become a “deadly haemorrhage” that needs to be gotten rid of by all means available. What IFF is
“It is not farfetched to say that the situation in Uganda is so dire,” Uganda Revenue Authority (URA) Commissioner General Ms Doris Akol, said when asked how deep-rooted the financial illicit flows (IFFs) problem is in the country.
Speaking at the sidelines of the Third Prosecutors Symposium, she said it for this reason that the tax body has dedicated this year’s theme to the fight against illicit financial flows in the country.
This is because IFFs have since become a “deadly haemorrhage” that needs to be gotten rid of by all means available.
What IFF is
Illicit financial flow is simply defined as any money or even capital that is illegally earned, transferred or utilised.
“It includes funds which are a result of illegal acts like smuggling, trafficking in minerals, wildlife, drugs, and people to mention but a few,” Ms Akol said in her speech she delivered at the prosecutors symposium recently.
She continued: “It is characterised by illegal movement of money or property from one country to another.”
Some of the examples she cited include: An importer using trade mis-invoicing to evade taxes such as customs duties, VAT or income tax.
Another example she gave was of a corrupt public official using an anonymous company to transfer ‘dirty’ money to a bank account in a different jurisdiction.
She concluded by saying that: “All these are examples well within our territories.”
As a person who is in position to know, Ms Akol further stated that IFFs pose a great challenge to political and economic security around the world, particularly in developing countries such as Uganda.
Why fight IFFs
According to Uganda Revenue Authority Commissioner for legal and board affairs Patience Tumusiime Rubagumya, the impact of IFFs in draining the country’s economy shouldn’t be under estimated.
She argues that knowledge, experience and collaboration across board come in handy in fighting IFFs.
And it is for this reason that the tax collector sought to work with the prosecutors to bring this problem, already bleeding the continent, to an end.
As for Ms Akol, dealing with the IFFs will undoubtedly result into increased revenue needed to meet national development goals.
She said: “Part of our plan to increase domestic revenue collection is ending illicit financial flows, especially those arising from smuggling, trade, under declarations, fraud and other forms of tax evasion.”
She continued: “This can be done through detection and deterring of cross border tax evasion, elimination of anonymous shell companies, work to curtail trade mis-invoicing and to improve transparency of multinational corporations.”
Importantly perhaps, she argues that tackling IFF will require proper investigation, prosecution and addressing weaknesses in the legal regimes.
She urged the prosecutors and the police as well as everybody involved in the chain to stop, track and recoup what is due to the national kitty, to play their role without fear or favour.
In an earlier interview, Ms Akol said to increase domestic revenues, IFFs, especially those arising from smuggling, trade, mis-invocing, transfer pricing and other forms of aggressive tax planning must be stopped.
So far, she said: “URA is already involved in some aspect of curbing IFFs.”
For the case of Uganda, a Global Financial Report quoted in a study titled: Taxation in Uganda, produced by Oxfam in Uganda and Southern and Eastern Africa Trade, Information and Negotiations Institute (SEATINI Uganda), estimates that nearly Shs2 trillion in average is lost annually to illicit outflows.
This is nearly three quarters of the budget of the Transport and Works docket, a sector that took the biggest chunk of the 2017/18 National Budget.
And according to a report on IFFs, the estimates lost every year to illicit outflow are as a result of illegal activities perpetrated mainly by the multinational companies as well as wealthy and powerful individuals in the country.
In the same report, the African Union/Economic Commission for Africa High Level Panel on Illicit Financial Flows from Africa report, chaired by former South African president Thabo Mbeki, indicates that multinational corporations in Africa rob the continent of its due share of revenue through tax evasion, money laundering and false declaration.
Other illegal and immoral methods used by the international corporations include; overpricing, corruption and sheer tax avoidance.
The High Level Panel report further reveals that Africa loses billions of dollars every year in illegal capital outflows, especially through the extractives sector.
These losses could also be in form of profit-shifting, lack of transparency, financial secrecy, lack of clarity about beneficial ownership and inadequate reporting of payments.
Africa, according to the High Level Panel report, loses more than $50 billion (about Shs181 trillion) annually in illegal capital outflows, with much of this money being lost through illegal activities supported by multinationals.
With extractive sector, one of the most plundered in terms of IFF, just shaping up here, it has emerged that illicit revenue in Uganda seems to end up importing consumer goods, common occurrence in financial transaction and widespread in service industry.
Other parties speak
Interviewed for this article, the principal state attorney Barbara Kawuma, said as people mandated to prosecute cases on behalf of the government, their role in restraining and recovering the proceeds of IFFs shouldn’t be underestimated but harnessed.
“IFFs have been around here for some time. The trend is now changing to terrorism financing and money laundering. As an institution we need to deal with IFFs. We already have a manual on how to go about that,” said Ms Kawuma.
She continued: “So in as far as prosecution is concerned we have a great role to play and that is why collaboration with URA and other agencies regarding this matter is important.”
Mr Alvin Mosioma, the founding executive director of Tax Justice Network- Africa, in an earlier interview he gave at the sidelines of the 4th International Tax Justice Academy held in Entebbe last month, said progress on the ‘Stop the Bleeding Campaign’ is fairing on pretty well.
He said out of 10 they have so far scored at least six in terms of progress. The purpose of the ‘Stop the Bleeding Campaign’ is to raise awareness among common citizens about the impact of illicit financial flows on Africa’s economic development.
The country director of SEATINI Uganda, Ms Jane Nalunga, in her presentation at the 4th Tax Justice Academy, said for action and impact to be created, citizens should begin to consider issues of taxation, including evasion and avoidance as personal matters.
Tax avoidance is mainly common with multinational corporations that use transfer pricing and tax havens to avoid paying their fair share of taxes, and to curb tax avoidance legal frame work to weed out possibilities for tax avoidance must be improved.
Strengthening the capacity of Uganda Financial Intelligence Authority so as to curb tax avoidance such as transfer pricing, should be high on the agenda.
Studies have shown that at least half of the revenue that should be collected can be lost by government treasuries through corruption and tax evasion.
Uganda raises the least tax revenue as a percentage of its total budget standing at 49 per cent, making it one of the countries in East Africa with the huge budget deficit, according to Taxation and Human Rights Report compiled by the East African Tax and Governance Network.
Facts About Illicit Financial Flows and Africa
How this is done
Through IFFs large sums of money are being siphoned out of African countries using both “legal” and illegal means. About the same amount of tax revenue that’s being collected every year is also being lost by African countries through “illegitimate” means that are not explicitly “illegal.” So, $60 billion dollars a year is a very conservative estimate of how much illegal money is bleeding from Africa.
Illicit financial flows are done in secret. Whether it’s very generous tax breaks given to companies or avoiding taxes altogether, these deals are not transparent and do not benefit the average person.
Weak government institutions make countries vulnerable to corruption and exploitation from foreign companies. These companies retain the best bankers, accountants and lawyers to take advantage of weak public institutions and to cover up their shady deals.
Who takes part
IFFs are a global problem. We cannot point the finger only at multinational corporations (MNCs); political structures allow MNCs to take funds in secret and hide the money. There are a number of actors that civil society organisations are pressuring to change the policies and practices that lead to IFFs. This includes African governments, the private sector, international organisations, and governments in the developed world. It’s in the interest of African governments to deal with this issue because tax revenues, if applied to capacity building and social and economic projects, can help create sustainable development.
Conversely, all able governments across the world can play an important role in strengthening and enforcing laws that require all corporations with ties to other countries to publically share information on the ownership of companies and their earnings; organisations in the world are working to strengthen these necessary laws.
How IFFs impact Africa
To understand the magnitude of the problem, let us use the following situation according to US Africa Network.
In 2012 alone, the countries in sub-Saharan Africa collectively received $39.9 billion in development assistance. This money was intended for development projects in areas such as health, education, water and sanitation, road construction, irrigation systems, and energy. And some of this assistance was in loans, not grants, and Africa’s debt is rising.
That same year, these countries lost $68.6 billion to the illegal outflow of money, much more than the development aid they received.
As we can imagine, the bleeding of Africa’s wealth and resources threatens attempts to build strong political and economic institutions. Strong institutions that work in the interest of the masses of people are important because they help break the cycle of aid dependency in Africa by promoting homegrown economic development.