Fraud, tax avoidance threaten regional economies in East Africa: experts

East Africa tax experts have raised concerns over increasing cases of tax evasion and fraud by some tax payers in the region which is crippling the economies.

They made the remarks on Wednesday during the 6th East Africa regional meeting on tax investigation and enforcement in the Rwandan Capital Kigali.

The two-day forum focuses on raising awareness and strengthening efforts to clamp down tax evasion and fraud in the region which is draining countries’economies.

“Tax avoidance and cheats is entrenching poverty and weakening economy in the East Africa region. We are looking at enhancing our tax systems to deter fraudulent schemes aimed at avoiding tax payments to our economies,” said David Yego, commissioner for investigations and enforcement at the Kenya Revenue Authority (KRA) at the meeting.

He noted that Kenya tax body has taken more than 300 cases to court over tax fraud, and the government has enacted a law targeting units of foreign companies that escape remitting most of their domestic taxes.

Commissioners of tax investigations and enforcement from Kenya, Tanzania, Uganda, and Rwanda who attended the meeting emphasized on working on mechanism to share intelligence on possible taxation fraud and avoidance.

The forum also highlighted the challenge of transfer pricing used by most foreign companies in the region to evade tax compliance.

Transfer pricing is the setting of a price for goods and services sold between related legal firms in a way that help the companies minimize tax exposure.

It happens when multinationals sell to their parent or subsidiaries abroad at lower prices, thus denying revenues to local tax bodies.

The meeting brought tax experts, officials from the countries of Uganda, Kenya, Rwanda and Tanzania.

According to Evarist Mashiba, commissioner for tax investigations and enforcement at Tanzania Revenue Authority (TRA) reducing millions of dollars lost in tax evasion and fraud in the region requires urgent and coordinated action.

“Tax crimes are very similar. What goes on Kenya is the same that goes on in Tanzania, Uganda or Rwanda. We must fight jointly,” he added.

Africa loses more than 50 billion U.S. dollars every year in illicit financial outflows as governments and multinational companies engage in fraudulent schemes aimed at avoiding tax payments, according to a 2015 report by African Union’s high-level panel on illicit financial flows and the UN economic commission for Africa (Uneca).

The report called for renewed political interest in fighting corruption, increased transparency in extractive sector transactions and a crackdown on banks that aid fraudulent transfers.

However, Pascal Bizimana Ruganintwali, deputy commissioner general and commissioner for corporate services at the Rwanda Revenue Authority (RRA), said that the East Africa tax bodies are working together to curb illicit trade in taxable goods as part of efforts to cut revenue leakages and tax evasion within the region.

“We have convened here to share views on how best we can improve tax compliance in our region. We are also looking at towards a fully functional Single Customs Territory that will ease goods clearance, and increase revenue correction. Our region can’t afford to lose millions of dollars that could be spent on eradicating poverty and boosting our economies,” he emphasized.