Tax and good governance in Africa

Duration 2016–2018

Institute Institute for Austrian and International Tax Law

Department Department of Tax and Public Law

Jonathan Leigh Pemberton, Clement Migai, Marta Olowska

Riël Franzsen (University of Pretoria), United Nations Office on Drugs and Crime, World Bank Group

The problem of illicit financial flows has been prominent on the international agenda for the last decade. Illicit financial flows undermine domestic resource mobilization by eroding the tax base. This occurs through the illicit transfer of private capital abroad; tax evasion and tax avoidance by individuals and corporations; and embezzlement of government revenue. This in turn contributes to a greater dependency on official development assistance and to slower economic growth, which may subsequently hinder efforts to reduce poverty and inequality.

Interagency cooperation and emerging technologies are crucial in the fight against corruption, money laundering, and tax crimes in Africa.

The research project identified the links between corruption, money laundering, and tax crimes. It promoted the concept of good tax governance and the importance of a corruption-free and transparent tax system for economic development. Jeffrey Owens and his team reviewed legislation and tax treaties and developed proposals for improving laws in order to build a more transparent legal framework. In addition, a variety of stakeholders in national tax administrations, law enforcement agencies, and private sectors were identified and mobilized, and a network of key institutions in Africa was established in order to build up institutional capacity. These activities were accompanied by training seminars and high-level conferences that brought together academics, government officials from Africa, international organizations (e.g. the African Development Bank, the Commonwealth Association of Tax Administrators [CATA], the World Bank), and regional organizations (e.g. the African Tax Administration Forum [ATAF]). The research findings highlight the importance of interagency cooperation, and of emerging technologies that can play a significant role in stemming illicit financial flows. Additionally, cooperative compliance was identified as beneficial in assisting tax administrations and businesses in achieving common objectives and generating the political will for agencies to adopt a whole-of-government approach.

The proposed legal frameworks have been endorsed and implemented by several African countries, resulting in increased cooperation among national tax institutions and higher tax collections.

The research findings raised awareness of illicit financial flows from African countries, which several institutions have estimated amount to more than the official development assistance going to these countries. Overall, 35 African countries endorsed the research output and several have implemented the proposals for addressing these challenges (e.g. Kenya, Zambia). Some of these countries have already reported that the suggested measures for interagency cooperation have helped to build capacity and empowered various agencies to cooperate better. This has led to an improved exchange of information and increased tax collections domestically, which contribute to reducing reliance on official development assistance. In March 2016, agencies from three countries signed a memorandum of understanding to foster cooperation at the international level. Thus, the research has helped to strengthen interagency cooperation and tax collection in developing countries and contributed to SDG 16 “Peace, Justice and Strong Institutions” and SDG 17 “Partnerships for the Goals.” The project was recognized for its impact in the “Peace, Justice and Strong Institutions” category at the 4th Global Entreps Awards and #5Gcitizens International Congress 2018 in Brussels.

Review of legislation and tax treaties to identify links between corruption, money laundering, and tax crimes

Proposals for building more transparent legal frameworks

Implementation of the proposals by African countries and increased tax collections