As recent leaks and journalists’ investigations in Africa have revealed, the use of shell companies and lack of accurate and up-to-date information on the identity of beneficial owners of legal entities and arrangements are key obstacles in the fight against tax evasion and other sources and channels of illicit financial flows (IFFs). More generally, the dearth of transparency and a culture of exchange of information still hinder the development of a conducive environment for combating IFFs.
Although the quantum is open to debate, there is wide agreement that IFFs from Africa are significant and most probably increasing, thereby diminishing African countries’ tax bases and undermining their domestic resources mobilisation (DRM) efforts. Some estimates range from US$50 billion to US$80 billion a year. According to a recent report from the United Nations Conference on Trade and Development, curbing IFFs from Africa could generate an additional US$89 billion annually. IFFs therefore deny these countries much needed revenues for the attainment of national development agendas, and investment in public services. Moreover, some authors indicate that more than 40 per cent of Africa’s financial wealth could be held offshore, with a corresponding loss of tax revenue adding up to US$19 billion for the continent.
Tax evasion and other financial crimes like corruption or money laundering thrive in environments with a weak transparency culture and where tax administrations’ domestic powers are of no use to obtain information from a foreign country. In order to bridge borders and obtain information relevant to their audits and investigations, international cooperation is needed. Today, exchange of information for tax purposes (EOI) is widely used around the world to enhance transparency and facilitate the fight against cross-border tax evasion. Transparency and international tax cooperation have proven to be powerful weapons in the fight against IFFs over the past decade.
This article focuses on the contribution of the Africa Initiative in advancing the tax transparency agenda in Africa through political engagements and concrete changes on the ground. With the commitment of African countries and support from development partners, the Africa Initiative is already making a visible difference as discussed below.
An Initiative For Africa
While the global community is making progress in using and promoting transparency and EOI, African countries are not fully benefitting from the recent improvements. Recognising the potential of transparency and EOI to address IFFs and raise much needed resources for development, the Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum), its African members and other partners and donors launched the Africa Initiative in 2014.
Its main objective is to unlock the potential of tax transparency and EOI for African countries. Open to all African countries, the Initiative currently gathers 32 of them and alongside 11 regional and international partner organisations. The Initiative revolves around two pillars: raising political awareness on the benefits of tax transparency on the continent; and building African tax administrations’ capacities by providing support tailored to each country’s needs and priorities. The ultimate aim is to reinforce capabilities to effectively engage in EOI and use it in the context of tax audits, investigations and other compliance activities to stem IFFs and increase DRM. These objectives are central to the attainment of national development agendas, the African Union Agenda 2063 and the global Sustainable Development Goals.
The Tax Transparency in Africa annual report captures the progress achieved so far and highlights remaining challenges. The latest edition, Tax Transparency in Africa 2020, shows that the Africa Initiative has made significant headway in advancing the transparency agenda.
Important collaborative efforts in raising political awareness on the benefits of tax transparency and EOI ensured the critical political buy-in. Continuous engagement with high-level policy decision-makers at the continental, national, and regional levels resulted in the growing participation of African countries in the Global Forum (32 members in 2020 compared to only four in 2009). Organisations such as the African Union Commission, the African Development Bank and the African Tax Administration Forum also joined the Africa Initiative.
African countries’ political commitment is encapsulated in the Yaoundé Declaration, a landmark declaration that calls for strengthening African countries’ participation in international efforts to stem tax evasion through transparency and EOI. From four signatories in 2017, Ministers of Finance from 30 African countries have now joined this call for an African tax transparency agenda.
Tax transparency is becoming a high-level priority for African tax administrations. They are now putting in place the necessary infrastructure for an effective participation in EOI, including the establishment of functional EOI units and equipping them with well-trained staff. The Africa Initiative has intensified its technical assistance to build and develop an EOI culture across its members’ tax administrations. Over 30 capacity-building events that facilitated training for over 1,000 tax officials from 44 African countries have been organised between 2015 and 2019. In 2019 alone, the Global Forum Secretariat, in collaboration with partners, provided intensive mentoring to 12 African countries and tailored assistance for over 20 others. In response to the unique challenges posed to technical assistance by the COVID-19 pandemic, the Global Forum Secretariat set up an action plan to ensure the continued delivery of its technical support. To date, seven virtual events, including three on transparency of beneficial ownership, have been delivered to train more than 1,000 tax officials from 30 African countries.
It is equally encouraging to observe African countries widening their EOI relationships by joining the Convention on Mutual Administrative Assistance in Tax Matters (3,262 bilateral relationships in 2019 compared to 913 in 2014).
More importantly, EOI networks are now used to send more requests (+48 per cent between 2018 and 2019), which, in turn, translates into more revenue. Information received supports compliance activities and brings previously untaxed income into the tax bracket. As an example, requests sent in 2019 directly resulted in five African countries identifying nearly US$12 million additional tax revenue. A group of eight African countries secured a total of US$189 million in additional taxes as a result of EOI between 2014 and 2019. Nonetheless, African countries still receive more requests than they send out, and four countries alone account for nearly 75 per cent of all outgoing requests. Hence, there is scope for intensifying the use of EOI by African countries to combat tax evasion and tax avoidance.
Automatic exchange of financial account information (AEOI) is also gaining traction in Africa. Seychelles, South Africa and Mauritius are engaged in reciprocal exchanges. While Ghana has started sending information and Nigeria plans to begin in 2020, they are both working towards fully reciprocal exchanges. Morocco and Kenya have committed to do so in 2022. Although 115 jurisdictions are committed to AEOI by 2023, only seven are from Africa. This low participation does not reflect AEOI’s potential for African countries. The new standard has already facilitated the identification of €102 billion non-reported tax revenues globally, through voluntary disclosure programmes and investigations prior to the first exchanges. This included €27 billion for developing countries, of which US$82 million for Nigeria and US$296 million for South Africa.
Although African countries have made significant progress in engaging in tax transparency and EOI and are using it as a tool to combat IFFs and boost DRM, more needs to be done to ensure that they fully harness the benefits. It is therefore gratifying to note that delegates at the 8th Africa Initiative meeting, held between 30 September and 2 October 2020, agreed to renew its mandate for another three years (2021-2023).
In the new phase, the Initiative will aim to solidify the advances made and entrench the culture of tax transparency and EOI. Ensuring that political commitment remains high in the fight against tax evasion and other IFFs will be key, despite the current context. Continued support will be provided to assist African countries further widening their EOI relationships and making effective use of the EOI frameworks. Ensuring transparency of beneficial ownership information and encouraging greater participation in AEOI will also remain key items on the agenda. In parallel, the Initiative will explore new work streams including assistance in recovery of tax claims, a wider use of information exchanged for non-tax purposes and an effective use of data exchanged under the AEOI standard. The Africa Initiative’s work is just beginning, and the tax transparency agenda is moving forward in Africa.
 African Union Commission (2019). Domestic Resource Mobilization: Fighting against Corruption and Illicit Financial Flows. AUC Publishing, Addis Ababa: https://au.int/sites/default/files/documents/37326-doc-k-15353_au_illicit_financial_flows_devv10_electronic.pdf
 UNCTAD (2020), Economic Development in Africa Report 2020 Tackling Illicit Financial Flows for Sustainable Development in Africa, Geneva: https://unctad.org/news/africa-could-gain-89-billion-annually-curbing-illicit-financial-flows
 Zucman, G., Fagan, T. L., & Piketty, T. (2017), The Hidden Wealth of Nations: The Scourge of Tax Havens, Second edition updated and extended, Le Seuil.
 OECD (2019), Transparency and Exchange of Information for Tax Purposes: Multilateral Co-operation Changing the World – Global Forum 10th Anniversary Report: https://www.oecd.org/tax/transparency/documents/global-forum-10-years-report.pdf
 African Development Bank Group, African Tax Administration Forum, African Union Commission, Cercle de Réflexion et d’Echange des Dirigeants des Administrations Fiscales, European Union, French Ministry of Europe and Foreign Affairs, Norwegian Agency for Development Cooperation, Swiss State Secretariat for Economic Affairs, United Kingdom Foreign, Commonwealth & Development Office, West African Tax Administration Forum, World Bank Group.
 AU, ATAF and OECD (2020), Tax Transparency in Africa 2020: Africa Initiative Progress Report 2019: https://www.oecd.org/tax/transparency/documents/tax-transparency-in-africa-2020.htm
 Which includes taxes, penalties and interests.
Zayda is Head of the Secretariat of the Global Forum on Transparency and Exchange of Information for Tax Purposes. She previously served as Senior Economist at the Fiscal Affairs Department of the International Monetary Fund; and was Deputy General Commissioner of the Brazil Revenue Administration. Her specialties include Tax, Transparency, International Tax and Tax Administration.