Uganda robbed of sh1.5 trillion annually

AT a focus group discussion in Padibe, Lamwo district, a young male participant rises up and says, “Why should we pay taxes when results are not seen at community level? Services are poor; our roads and health services are appalling.”

Though the young man did not receive an apt response during the meeting, a report commissioned by the 4th Joint African Union Commission and United Nations Economic Commission for Africa Conference provides some answers with startling findings. Uganda loses an average of $509m (about sh1.5 trillion) annually due to Illicit Financial Flows (IFFs). The figure is 10% of the current national budget.

This money is 15% more than the health budget and could have been channeled to providing anti-retroviral treatment to over 570,000 Ugandans and over 102million Long Lasting Insecticide Treated Nets.

Illicit financial flows refer to money illegally earned, transferred or used relating to its origin or during movement or use. The flow of money that has broken laws is considered illicit.

Recent reports revealed that 56 individuals associated with Uganda are holding $89.3m (about sh259b) in the Swiss branch of British banking giant HSBC. The accounts were suspected to belong to tax dodgers and criminals around the world.

“Illicit financial flows are equivalent to slave trade. Illicit flows rob of us of critical resources required to transform the lives of women and men in Uganda and the entire continent,” Arthur Larok, the head of Actionaid Uganda said at a dialogue on the report.

The dialogue organized by the Southern and Eastern Africa Trade Information and Negotiations Institute (SEATINI) and Actionaid at the golf course hotel brought together senior tax officials, politicians, media and civil society.

The report titled: “Illicit financial flows: Track it!, Get it!, Stop it!” noted that Uganda lost a massive $4.1b (sh11.9 trillion) between 2000 and 2008.

Various means are used to siphon the funds such as undocumented commercial transactions, purely criminal activities like overpricing, transfer pricing, tax evasion, money laundering, corruption and false declarations.

Former South African President, Thabo Mbeki chaired a high level panel that prepared the report. The panel found that Africa lost over $854b (sh2477 trillion) in illicit financial flows between 1970 and 2008, condemning the continent to poverty.

During the period, yearly average of illicit financial flows was $22b but the figure has since risen to more than $50b a year. “Illicit Financial Flows from Africa is an African problem which requires global solutions,” Mbeki noted in the report.

Irene Ovonji Odida, a member of the high level panel noted that minerals, multinational firms, exports, senior government officials, large law firms, big accounting firms are the most prone to illicit financial flows.

She noted that Africa is a net loser in the illicit financial flows web. Odida explained that developed countries are regularly using aid as a key to open doors for their multinational companies to hook business deals in Africa.

The multinationals then form complex tax avoidance schemes, under declaration of revenues, and transfer pricing to enrich the donor countries.

“For every dollar Africa gets in aid, the continent loses $10 in illicit financial flows. Illicit flows affect several factors of the economy. Illicit flows create income inequalities, they increase the tax burden on small companies and weaken governance and service delivery,” Odida said.

“These activities are driven by an intricate network that crosses multiple jurisdictions and constitute a drain on foreign exchange reserves, reduce tax collection, cancel out investment inflows and contribute to worsening poverty,” she added.

Odida noted that tax incentives are being handed out in exchange for bribes and should be phased out as part of wider efforts to eliminate tax havens and other manners of harmful tax practices as a means of achieving post-2015 Sustainable Development Goals in Africa.

The report notes that the number of people living on less than $1.25 a day in Africa is estimated to have increased from 290 million in 1990 to 414 million in 2010 according to United Nations data thanks in part to illicit financial flows.