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Corruption, tax evasions and incentives, major causes to illicit financial flows 

Corruption, tax evasions and incentives, major causes to illicit financial flows 

Everlyn Muendo

Criminal activities, corruption as well as tax evasion and tax incentives given to multinational corporations are the major causes of illicit financial flows (IFFs) in Africa.

Rudairo Mapuranga

Speaking at the Zimbabwe Environmental Law Association (ZELA)’s Champion Member of Parliament (MPs) capacity-building program with the Parliamentary caucus on Illicit Financial Flows (IFFs) and taxation Kenyan Finance researcher Everlyn Muendo said Multinational Corporations in Africa work flat out to make sure that they reduce tax liabilities by evading taxes through legal and illegal means bleeding African countries of the much needed foreign currency.

According to Muendo multi-national Corporations, especially those in the extractive industry are bleeding African countries of their taxes and revenues through different schemes like using lawyers to create tax evasion companies like Trusts, Private Voluntary Organizations (PVOs) among others as well as coming to invest indirectly through tax Haven countries like Mauritius.

“There are ways multinational Corporations are reaping off African countries that do not seem to be illegal but a form of illicit financial flows. The companies use lawyers to create companies that do not pay tax, and instead of coming directly to Zimbabwe or Africa, they come through Mauritius,” she said.

She said that the way Zimbabwe’s tax system in the mining industry is porous and a danger to the growth and development of the economy. She said the process and principle of double taxation creates a winner and loser with African countries losing at the hands of multi-national corporations.

“Double taxation agreements in reality are subject to massive tax abuse. African countries in the name of competing for Foreign Direct Investment (FDI) end up losing tax revenue. Many African governments including Zimbabwe are providing tax incentives in an effort to attract investment, therefore, ending up giving developed countries their resources for free in the name of attracting investment,” Muendo said.

She said African governments although they justify tax holidays by saying they provide FDI, the truth of the matter is that the holidays are based on politics more than on economics.

“Our tax system are favourable to the multinational corporation. Parliament urged to exercise a well-researched and informed oversight role to ensure that Africa does not lose from ‘legal illicit financial flows ‘ there should be due procedures that should be to countries coming in to extract natural resources.

“The people who set the global rules or double taxation are developed countries at the same time the same ones causing illicit financial flows.

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“Africa should be the one dictating on tax laws than taking the laws from developed countries,” she said.

According to Chikomba Member of Parliament Hon Tatenda Mavetera in response to Muendo’s presentation, for the Parliament to help the government in coming with tax holidays, there is need to push for a clear legislative framework that benefits the country.

“As legislators, we need to assist our government so that they benefit from investments. We need proper legislation when it comes to tax holidays. There was revenue for Zimplats, initially, it was 15 per cent, then it was totally removed, and now it was introduced as 5 per cent. We need to take the bull by the balls,” Hon Matevera Tatenda said.

According to ZELA ‘s Tafara Chiremba, the parliament should take guard, to ensure that every deal is beneficial to our country.

“There is a need to ask important questions before treaties are signed. Parliament usually comes at the end of the agreement, that’s a real problem, parliament should come from the beginning. Parliament should not be just notified but be involved. Capital exporters will push for more benefits to the detriment of our countries,” Tafara said.

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