6th June, 2015
DAKAR, (Reuters) – Leaky tax administration could result in the loss of an estimated $56 billion dollars for West African governments over six years, potentially costing them as much as they receive in foreign aid, according to a study released on Friday.
A report from Open Society Institute West Africa (OSIWA) and global development think tank Dalberg found that West African countries stood to lose $56 billion between 2012 and 2018 in tax revenue from corporations, most from ineffective tax incentives and transfer pricing.
Transfer pricing in Africa often refers to the practice of an overseas unit of a international corporation charging a domestic one for services or materials, allowing profit to be moved to another tax jurisdiction.
The report found that Sierra Leone had proffered about $230 million in corporate tax breaks for miners in 2012, amounting to over half of the country’s budget that year.
Mohamed Sultan, economic governance programme officer at OSIWA, singled out Nigeria and Ivory Coast, the largest economies in the region and host to a number of multinational corporations, as losing out heavily from transfer pricing.
“We tend to lose as much money (through poor tax policy) as we tend to obtain in foreign aid,” Sultan said. “Nothing is as sustainable as fair and just taxes.”
Global Financial Integrity, a Washington-based campaigner against illicit financial flows, has estimated that 60 to 65 percent of lost taxes can be attributed to transfer mispricing.
The report suggested that issues within West Africa’s tax code impact the rest of the world.
While tax avoidance schemes are inherently difficult to trace, OSIWA’s Executive Director Abdul Tejan Cole said in a statement that international banking systems and developed nations “participate in and benefit from” money flowing from Africa’s flawed tax code.