Although tax evasion is illegal and tax avoidance isn’t, both erode sustainable development in Africa. By Marcena Hunter for ISS TODAY.
First published by ISS Today
The release of the Paradise Papers last year and the Panama Papers in 2016 revealed the role tax havens play in facilitating tax avoidance
Both flows negatively affect sustainable development in Africa, but tax evasion tends to generate a bigger response than tax avoidance, and subsequently provokes stronger political will to crack down on tax havens.
Understanding the differences between tax evasion and avoidance, their influence in Africa and whether they qualify as illicit financial flows
In practice, the distinction between the terms is not always clear. The Inter-Agency Task Force on Financing for Development
There is general agreement that tax avoidance practices are the financial side of criminal activity and efforts to define them contain common elements, but many definitions still exist.
As tax evasion is illegal while tax avoidance is legal, focusing only on legality could undermine the application and effectiveness of international efforts to combat the problem. Determining what constitutes illicit financial flows also depends on the legislation of a particular state, due to
So international mechanisms designed to tackle tax-related illicit financial flows can be impaired by differences in national legislation, as well as a lack of capacity or willingness to enforce the laws.
Assessments that judge the
Illicit financial flows fuel criminal economies, contribute to violence, perpetuate existing inequalities, subvert government institutions and undermine the integrity of legal and financial systems. They have even
But beyond monetary
One problem in developing cohesive international frameworks for cracking down on tax havens is contrasting views about the value and threat of tax havens. This includes tensions between stakeholders from developed, northern nations and those from developing southern countries.
Some argue that tax havens might have a
The African Network of Centres for Investigative Reporting showed that African actors and illicit financial flows figured
No African nations are members of the Organisation for Economic Co-operation and Development (OECD), and only South Africa belongs to more than one of six influential international financial institutions.
Also, when the OECD and the G20 designed the Common Reporting Standard – a standard for information exchange and the basis for bilateral agreements between states – they did so without meaningful consultation
The result, the Financial Transparency Coalition explains, is “a system designed by wealthy nations, with wealthy nations in mind, making many of the prerequisites impossible for countries that don’t have sizeable tax administration budgets or advanced technical capacity”. Also, some wealthy countries choose to share information predominantly or exclusively with other wealthy countries.
Various responses are needed to combat tax avoidance, tax evasion and illicit financial flows more broadly – but increasing the contribution of African states in international financial institutions is essential. Africa must have a voice within international financial institutions to ensure that regulations, policies and responses reflect African priorities. This will help ensure that priority is given to the flows that most negatively affect sustainable development.
Without this participation, Africa’s relationship with tax havens will continue to be one of pain and no gain. DM
This article was first published by the ENACTproject: Pain, no gain: Africa’s relationship with international tax havens
Photo: Jardine House, which houses the offices of Appleby in Central District, Hong Kong, China, 07 November 2017. Media reports stated that a leak of financial documents dubbed the ‘Paradise Papers’ with 13.4 million documents revealed how powerful and ultra-wealthy people secretly invest vast amounts of cash in offshore tax havens. The vast majority of the transactions involve no legal wrongdoing. Photo: EPA-EFE/JEROME FAVRE
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