Estimated $500billion in corporate tax is dodged each year globally by multinational corporations in tax havens, a new study, The Corporate Tax Haven Index (CTHI), launched by Tax Justice Network (TJN), claimed on Wednesday.

The CTHI shows an aggressive dispossession of low-income countries’ tax rights spearheaded by the United Arab Emirates (UAE), the United Kingdom (UK) and France.

The affected countries take advantage of minimal, if not non-existent transparency, systemic loopholes and non-implementation of anti-avoidance mechanisms.

Of the 64 countries examined from around the world, nine African countries, namely Botswana, Gambia, Ghana, Kenya, Liberia, Mauritius, Seychelles, South Africa and Tanzania, the CTHI revealed weak tax systems that are constantly exploited resulting in illicit financial flows (IFFs).

The CTHI showed how the United Arab Emirates (UAE) and Mauritius are among the most corrosive corporate tax havens against African countries.

Kenya and Mauritius signed a Double Taxation Avoidance Agreement (DTAA) in May 2012, which Tax Justice Network Africa (TJNA) successfully challenged in the Kenyan high court.

The CTHI’s findings have supported the claims of the High-Level Panel (HLP) on IFFs.

In Nigeria, for example, Chairman, Independent Corrupt Practices and Other Related Offences Commission (ICPC), Prof. Bolaji Owasanoye, said the IFFs are the bane of Nigeria’s growth.

Owasanoye said this at the inaugural meeting of Inter-Agency Committee on Implementation of the Thabo Mbeki Report in Abuja recently.

Mbeki heads African Union’s 10-member High-Level Panel on IFFs. The committee is waging war against illicit financial flows from Africa.

According to Owasanoye, Nigeria is a member of the group.

He said for the country to develop, government agencies must stop money that was going out.

“These monies go out by various measures and the big chunk was by tax evasion, under-hand business and practices by multi-national corporations, among others,” the ICPC Chairman said.

The CTHI reinforces the importance of the Kenya High Court ruling that declared the Kenya-Mauritius treaty null and void by demonstrating the dangers of DTAA signed with tax havens such as Mauritius and UAE in facilitating aggressive tax avoidance, resulting in significant revenue loss for many African countries.

The study reveals the nature of secretive tax havens behind the failure of the global corporate tax system.

CTHI identifies a global network of countries, whose jurisdictions are most responsible for aggressively undermining the ability of governments across the world to meaningfully tax multinational corporations (MNC).

Specific to Africa, the UAE and Mauritius are the continent’s most aggressive countries in terms of driving down the withholding tax rates of countries’ through treaties.

Many African countries are increasingly opening themselves to such exploitation.

For instance, in April 2019 President Uhuru Kenyatta re-signed a DTAA with Mauritius creating a legal conundrum over the treaty, soon after the court ruling invalidated an earlier agreement following TJNA’s petition.

Commenting on the study, the Executive Director of TJNA, Mr. Alvin Mosioma, said: ‘’It is unacceptable that the Kenyan government is shifting the burden of taxation to the ordinary citizen, while deliberately opening doors for the wealthy elite and unscrupulous MNCs to evade and avoid taxes through DTAAs with secretive tax havens.

“As confirmed by the recent IMF study and contrary to popular claims, DTAAs signed by African countries with tax havens do not lead to increased investments.”

Similar to the High Court ruling, this study underscores the position that DTAAs are often abused and provide loopholes for tax avoidance practices taking away revenues these countries direly need to finance their government programmes.

TJNA affirms its demand that the Government of Kenya and other African Governments should review the old and outdated DTAAs, particularly with tax havens, including those with UAE, Netherlands, and Mauritius and ensure that those presently under negotiation do not undermine domestic resource mobilisation efforts.

“Efforts by African countries to address poverty and achieve sustainable development goals will remain a mirage, if these countries do not stem Illicit financial flows and invest in building equitable tax systems,’’ said Mosioma.

The Mbeki panel, in its initial reports, said the IFFs have become a matter of major concern because of the scale and negative impact of such flows on Africa’s growth and governance agenda.

By some estimates, illicit flows from Africa are over $50 billion per annum. This is approximately double the official development assistance (ODA) that Africa receives and, indeed, the estimate may well be short of reality as accurate data does not exist for all transactions and for all African countries.

Some of the effects of illicit financial outflows are the draining of foreign exchange reserves, reduced tax collection, cancelling out of investment inflows and a worsening of poverty.

Such outflows which also undermine the rule of law, stifle trade and worsen macroeconomic conditions are facilitated by some 60 international tax havens and secrecy jurisdictions that enable the creating and operating of millions of disguised corporations, shell companies, anonymous trust accounts, and fake charitable foundations. Other techniques used include money laundering and transfer pricing. (The Nation)

Update news