The Secretary-General of the African Continental Free Trade Agreement, AfCFTA, Wamkele Mene, says African countries must review their current and prospective double taxation conventions, particularly those in place with jurisdictions that are significant destinations of IFFs, to ensure that they do not provide opportunities for abuse.
Wamkele Mene gave the advice delivered on his behalf by a Senior Investment Expert, Directorate of Services, Investment, Intellectual Property & Digital Trade at the AfCFTA Secretariat, Roslyn Ng’eno, at the Public Forum on the Role of Media in the Fight Against Illicit Financial Flows in Ghana at the Ghana-India Kofi Annan Centre of Excellence in ICT, in Accra
Illicit financial flows (IFFs) drain billions of dollars out of Africa annually.
Curbing these flows will contribute to increasing the resources required to realize the AfCFTA.
Curbing IFFs is likely to increase the capital available for businesses and boost capacities to produce and trade towards AfCFTA markets.
Deepening regional integration on the continent through the African Continental Free Trade Area (AfCFTA) can build resilient economies.
The AfCFTA, if quickly and effectively implemented, can address challenges emanating from Africa’s reliance on world markets while creating more value in local economies.
AfCFTA is expected to boost Africa’s total exports by 29%, intra-African trade by more than 81% and the rest of the world by 19%.
Trademispricing:
The first step in revenue collection is to ensure that all corporations, big and small, are registered for tax purposes.
In addition to existing registration requirements, countries may consider a provision in the respective acts regulating the registration of companies or small businesses to the effect that no registration shall take place without proof of tax registration.
In some countries, one cannot open a business bank account without proof of registration for tax.
On Transfer Pricing:
African countries should establish transfer pricing units as a matter of extreme urgency.
These units should be appropriately situated in revenue authorities and should be well equipped in accordance with global best practices
On Base Erosion and Profit Shifting:
exchange of tax information among African countries. Africa must strongly call for the automatic exchange of tax information globally, subject to national capacity and to maintaining the confidentiality of price-sensitive business information.
African countries must review their current and prospective double taxation conventions, particularly those in place with jurisdictions that are significant destinations of IFFs, to ensure that they do not provide opportunities for abuse.
Countries that are destinations for these outflows also have a role in preventing them and in helping Africa to repatriate illicit funds and prosecute perpetrators.
Thus, even though these financial outflows present themselves as an African problem, united global action is necessary to end them.
Such united global action requires that agreement be reached on the steps to be taken to expedite the repatriation of the illicitly exported capital.
Regional integration arrangements are now being used to introduce accepted standards for tax incentives and to prevent harmful competition in the effort to attract foreign direct investment.
Indeed, the positive transformation of African economies is at the heart of the AfCFTA through policies and institutional arrangements that will see increased intra-African trade and investment propelled by greater and effective facilitation and competitiveness.
The Protocol on Investment for instance provides an opportunity to adopt an investment regime that advances the objectives of AfCFTA to facilitate investment, promote inclusive growth and development, protect investment, enhance competitiveness the of African economies and ensure the attainment of the broader objectives of the African Union Agenda 2063 and the United Nations Agenda 2030.
Some of the provisions in the protocol that speak to development and contribute to addressing IFFs are:
Africa has the overarching objective of Sustainable Development: it includes aspects to promote accountability and responsible business conduct and a transparent investment environment.
The second area is the Chapter on Investment Promotion and Facilitation aimed at facilitating quality investments that contribute to sustainable development.
The third area is Chapters dedicated to Sustainable Development related issues and investor obligations that seek good governance by investors and establishes sufficient policy space for host states (via a sectoral approach that specifically addresses areas such as taxation and transfers pricing) to pursue development goals.
The entire point of the Chapter on Investor Obligations for instance is that it is meant to ensure investors comply with their obligations in a manner that contributes to the sustainable development of the State Party
Fourth, there are specific provisions on taxation and transfer pricing.
They are intended to provide direct obligations on investors not to engage in abusive transfer pricing, as well as requirements to provide relevant information to States Parties.
The Protocol has proposed an element of cooperation for preventing tax fraud and more particularly illicit financial flows.
Similar provisions for ensuring effective enforcement and compliance can be found throughout the chapter. It also provides the means of verification and enforcement.
As the secretary general concluded, he drew attention to the UNCTAD report, which highlighted that the AfCFTA through its various protocols, has established the foundations for better-integrated actions, including the harmonization of investment laws and practices; improvement of data collection and information sharing, that could be used to better track IFFs.
These he said would support the building-up of institutional capacity; and the promotion of transparency and accountability at both the state and private sector levels, which are essential to combating many forms of IFFs.
