Addressing illicit financial flows in Africa

The African Tax Administration Forum (ATAF) has been at the forefront of highlighting key strategies to tackle fiscal challenges in Africa. With a tax to GDP ratio below 15 percent on average, compared to the OECD average of over 34 percent, African countries are facing a significant gap in revenue mobilization. Logan Wort, Executive Secretary at ATAF, emphasized the need for these countries to broaden their tax base by targeting high net worth individuals and politically connected persons. Additionally, the changing global landscape of economic exchange presents both challenges and opportunities for revenue collection. The advent of social media platforms and e-commerce has enabled international companies to market and sell products across borders, leading to economic transactions without corresponding tax collection. This phenomenon underscores the importance of developing guidelines for digital services taxes and participating in global initiatives like the OECD Inclusive Framework Programme aimed at addressing the taxation of the digital economy. While Africa may not have secured the best deal in these conversations, there are significant revenue opportunities for the continent. One of the major obstacles to effective tax collection in Africa is the issue of illicit financial flows, which amount to nearly 50 billion US dollars annually. Wort identified multinational enterprises' aggressive tax planning as a key driver of these illicit flows, facilitated by weak tax legislation in many African countries. To combat this challenge, ATAF has spearheaded legislative reforms in areas such as transfer pricing and thin capitalization to curb profit-shifting practices. The organization has also supported member countries in strengthening double taxation agreements and implementing tools like the African Mutual Administration Agreement in Tax Methods to facilitate the exchange of taxpayer information and conduct joint audits. These efforts have resulted in the recovery of an additional US$1.2 billion in taxes for African countries. In the realm of environmental taxation, Wort highlighted the potential for Africa to enhance revenue collection through policies that promote environmental sustainability. While the uptake of environmental taxes remains relatively low across the continent, some countries like Rwanda and South Africa have made strides in implementing measures to combat pollution and emissions. By taxing environmentally harmful practices, countries can not only generate revenue but also contribute to broader environmental and health objectives. ATAF has initiated programs to provide guidelines on environmental taxation policies and legislation, as well as health-related taxes such as those targeting tobacco products. These initiatives aim to support African countries in aligning environmental taxation with their fiscal goals while promoting sustainable development. Addressing fiscal challenges and combating illicit financial flows are crucial steps towards achieving sustainable revenue mobilization in Africa. By leveraging innovative strategies, enhancing tax compliance, and promoting transparency and accountability, countries on the continent can unlock new sources of revenue and foster economic growth and development.