Experts from the West African Tax Administration Forum (WATAF) have revealed that Africa loses an estimated $89 billion annually through illicit financial flows (IFFs), according to the United Nations Conference on Trade and Development’s Economic Development in Africa Report 2020. This figure translates to approximately Six Trillion, Four Hundred and Eight Billion Dalasi (D6,408,000,000,000.00).
This disclosure was made by Mr. Jonas Igwe during his presentation to members of the Regional Legislature at the ongoing First Ordinary Session of the ECOWAS Parliament. His presentation focused on “Operationalizing ECOWAS Tax Directives for Domestic Resource Mobilization and Regional Tax Harmonization.”
Mr. Igwe emphasized that: “Africa loses an estimated $89 billion annually through illicit financial flows, according to UNCTAD’s Economic Development in Africa Report 2020, making IFFs one of the biggest constraints on domestic resource mobilization and development financing.”
He stated that one of the major challenges undermining economic development, fiscal stability, and domestic resource mobilization in West Africa is the issue of illicit financial flows (IFFs). He explained that the region faces a significant structural challenge in mobilizing domestic resources, particularly in a context marked by declining development assistance, rising public debt, and substantial losses due to IFFs.
He highlighted that the sources of IFFs in Africa include commercial activities, criminal activities, and corruption. According to him, commercial activities account for 65 percent of IFFs, criminal activities for 30 percent, and corruption for 5 percent.
To address IFFs and strengthen domestic revenue mobilization, he noted that ECOWAS has adopted a series of tax directives aimed at harmonizing fiscal policies across member states. These directives cover key areas such as value-added tax, excise duties, and transparency frameworks. They are designed to create a coherent regional tax system that enhances revenue mobilization and supports the functioning of the common market.
More recently, ECOWAS member states have advanced new tax reform priorities, including taxation of the digital economy, strengthening transfer pricing rules, improving tax transparency, and tackling base erosion and profit shifting.
He cited several ECOWAS tax directives, including:
- Harmonization of Rules on Beneficial Ownership: Establishes a unified framework for identifying and disclosing beneficial ownership across member states.
- Harmonization of Excise Duties: Aligns excise duty rates and structures to enhance regional trade and reduce harmful tax competition.
- Harmonization of Transfer Pricing Rules: Develops uniform rules to combat base erosion and profit shifting.
- Model Code of Ethics and Conduct for Tax Administration: Provides guidelines for ethical conduct and professional standards in tax administration across ECOWAS.
He stated, “Without harmonized VAT, excise, beneficial ownership, and transfer pricing rules, companies and individuals can exploit differences between member states.”
According to him, this situation leads to tax arbitrage, profit shifting, unfair competition, revenue leakage, double taxation for compliant businesses, and weakened regional trade integration.
He emphasized that harmonizing rules on beneficial ownership would facilitate the tracking of the real owners of legal entities, making it more difficult for individuals to conceal their assets and financial dealings. He added, “It also strengthens the fight against tax evasion and avoidance, combats illicit financial flows (IFFs), and improves the exchange of tax information.”
However, he acknowledged several challenges in implementing these directives. These include delays in the domestication of ECOWAS directives within member states due to a lack of political will, divergent national tax policies, varying economic conditions, limited digital infrastructure and data integration, and resistance from stakeholders. For example, some investors and civil society organizations oppose tax increases due to perceptions of heavier tax burdens.
He further noted that the ECOWAS Parliament has a pivotal role to play in ensuring effective implementation of the directives. Its responsibilities include facilitating the domestication of ECOWAS directives into national law, amending existing legislation to align with ECOWAS obligations, demanding annual implementation reports, and promoting stakeholder engagement and public awareness.
