The document discusses financing issues in Africa, emphasizing the importance of domestic resource mobilization (DRM) for economic transformation and the challenges faced due to external dependencies and ineffective tax policies. It highlights the detrimental effects of corporate tax incentives on national budgets and suggests significant revenue losses in West African countries, proposing recommendations to eliminate harmful tax incentives. Additionally, the document addresses illicit financial flows (IFFs) and their impact on governance and development, urging for enhanced transparency and regional cooperation to combat these issues.

1. Financing Africa’s Economic Transformation:
Policy Issues, Challenges, Options
Presentation at Acord Annual Learning Forum- 2015- Naivasha
Date: October 8, 2015
Alvin Mosioma, Executive Director, Tax Justice Network-Africa

2. Structure of presentation
• Domestic Resource Mobilization :Why it matters
• Challenges to DRM
• Africa’s Initiative on DRM and Tackling IFF
• Finance For Development Outcomes and Limitations
• Reforming International Tax Rules
• CSOs Campaign on DRM and Tax Justice

3. DRM debate
Is the debate about DRM exactly new? Not quite (Monterrey Consensus on Financing for Devt)

4. Monterrey outlined six key actions to finance the MDGs, namely -
i. DRM (essentially tax and non-tax revenue mobilisation) and strengthening the domestic
domestic financial sectors of developing countries by encouraging development of capital
capital markets and sound banking systems and raising financial inclusion.
ii. Mobilise international financial resources, including FDI and other private funds;
iii. Stimulate global trade as an engine for development;
iv. Increase ODA and technical cooperation
v. Adopt a sustainable external debt strategy, and
vi. Address systemic issues such as coherence of the international financial and monetary
monetary architecture/system

5. Four important reasons to re-emphasize DRM now.
i. Donor fatigue -
• Donors’ failure to honour long-standing commitment to deliver 0.7% of
Gross National Income as aid even in good times
• A growing sense that donors’ views on the purpose of aid are highly fluid

6. Important reasons to re-emphasize DRM now (CONTD.)
ii. Successful experiences of some developing countries highlight the importance of
building strong domestic fiscal and financial systems.
-- The experiences of China, India, and a number of East Asian countries have been
seminal for many developing nations not least in Africa.
iii. Global acceptance that external resources will not be enough to meet financing needs
needs to achieve the SDGs.
Iv In Africa, the decade-long commodity price boom (from 2002) combined with the
the Post-2008 multiple crises have moved the debate to the top

7. Importance of Taxation as a Key tool for DRM
• 4Rs of Taxation
• Taxes are the most stable and reliable source of domestic revenue available to countries.
• Without adequate domestic resources, African nations are dependent on external financing.
• The result? These countries are either not in control of how that money is spent or increasingly unable
unable to repay interest on loans, lose their policy space and thus trapped in circle of dependency.
dependency.
• Taxation is fundamental to state building and forms the foundation of the social contract between the
between the state and citizens. Without taxation there can be no viable state
• Therefore, raising domestic revenue through tax is crucial. Many African govts are giving away their
their taxing rights in the form of corporate tax incentives to MNCs and others, in a bid to attract FDIs.
FDIs.
• This is causing large losses in national budgets and fueling a competitive race to the bottom between
between neighboring countries.

8. State of tax mobilisation in Africa (I)
• Tax mobilisation in Africa is rising (driven by resource rich countries and
resource-related taxes)
• It crossed the 20% of regional GDP mark in 2009
• Tax-GDP ratio is however less than 17% in more than half of Africa’s 54 nations
nations (AfDB, UNECA 2010)
• Recent data indicate that the (unweighted) average tax-GDP ratio for Sub-Saharan
Saharan African states in 2011-2012 was below 17%.

9. State of tax mobilisation in Africa (II)
• SSA does not have the lowest tax-GDP ratio even across developing regions. It is higher than
higher than that of South Asia and also higher than the average for low-income countries
countries (Source: USAID Collecting Taxes database)

10. Challenges to Domestic Resource Mobilisation
• Mobilisation remains low despite significant effort and recent reforms in non-resource rich

12. A joint TJN-A/Actionaid report on corporate tax incentives in West Africa.
Title: “The West African Giveaway”
• The report examines corporate tax incentives among countries in the Economic Community
Community of West African States (ECOWAS) region, with a focus on Nigeria, Ghana, Ivory
Ivory Coast and Senegal.
• Key finding: That corporate tax incentives – reductions in tax offered by govts presumably to

13. • ‘Report’s findings:
• Ghana for e.g. loses up to US$2.27 billion each year. This is 3X the country’s
budgetary allocation to health

14. • Nigeria also forgoes US$2.9 billion a year. This is more than the Federal Govt’s budget for
education
• The report shows that three countries alone (Ghana, Nigeria and Senegal) are losing up to
US$5.8 billion a year.
• If rest of ECOWAS lost revenues at similar percentages of their GDP, total revenue losses
among the 15 ECOWAS states would amount to US$9.6 billion a year
• These, of course, could be invested in public services such as health and education and
other key infrastructure, thus supporting favourable conditions to attract better
investment.
• ECOWAS countries hardly co-ordinate on these incentives, and, as the report notes: “The
use of corporate tax incentives is causing a competitive race to the bottom among countries
in West Africa which is detrimental to national revenue bases and regional integration.”

15. Recommendations of the report:
• Eliminate corporate income tax holidays;
• Publicly review and assess all corporate tax incentives, with costings and justifications
provided for each.
• Ensure that all new incentives get parliamentary approval, are overseen by a single well-
well-resourced entity, and end discretionary corporate tax incentives.
• Avoid “stability clauses” which lock in corporate tax incentives long term
• Audit corporate tax incentives to check that the promised investment has actually been
been carried out.
• Agree a regional framework for co-operation on corporate tax incentives and on their
oversight; and on possible tax harmonisation to avoid a ‘race to the bottom’.

16. Tackling Illicit Flows From Africa
• Adoption in January 2015
• African leaders adopted the final report at
the 24th summit of the African Union
in Addis Adaba.
• They also issued a “Special Declaration”
• It is the most definitive voice of
African countries on the issue of
IFFs from Africa

17. High level Panel on IFF
• Chaired by Thabo Mbeki, former President of South Africa.
Panel’s mandate:
• Determine the nature and patterns of IFFs from Africa
• Establish the level of IFFs from Africa
• Assess the complex and long-term implications of IFFs for development
• Raise awareness among: African govts, citizens and global partners on the scale and
and effects of IFFs on development and
• Propose alternative policies & mobilise support behind practices that would reverse IFFs
reverse IFFs

18. IFFs drivers & enablers
• IFFs are driven by a number of ‘push’ and ‘pull’ factors.
• Push & pull factors:
• Poor governance
• Weak regulatory structures
• Tax incentives
• Weak capacities
• Double Taxation Agreements (DTAs)
• Financial secrecy jurisdictions and/or tax havens

19. Key findings of the report
• The Panel established that Africa loses at least US$50 billion each year through IFFs
IFFs
• Africa thus lost close to US$1 trillion between 1980 and 2008 through IFFs
• IFFs from Africa are large and increasing.
• Success in addressing IFFs is ultimately a political issue
• Transparency is important for tackling IFFs.
• Commercial routes of illicit financial flows need closer monitoring.
• African countries depend mainly on their extractive industries.
• New and innovative means of generating IFFs are emerging.
• Tax incentives granted by African countries are not usually guided by cost-benefit
benefit analyses.

20. Key findings of the report
• There are 3 components of IFFs: (a) commercial, (b) criminal and (c) corrupt components
• Close to 65% of IFFs take place in Africa’s extractive sector

21. Impacts of IFFs
Weakening Governance:
• Weak public institutions and compromise public officials
• Debasement of values and misalignment of incentives
• Corruption & criminal activities, conflict and insecurity
Development Consequences:
• Loss of multiplier effect for growth and job creation
• Africa’s capital stock would have expanded by 60% & GDP per capita of 15%
• Rate of domestic investment to GDP would have risen from 19% to 30%
• Leveraging effect of state intervention
• Infrastructure

22. Impacts of IFFs (II)
Fiscal effects and austerity
• Discourages transformation and transparency by discouraging value creation, IFFs
creation, IFFs impact negatively on African aspirations for structural
transformation.
• Strain Africa’s capacities – there is great concern over the risk African countries
countries face in making unbalanced tax concessions.
• Undermine international development cooperation - global efforts to promote
promote partnerships for aid effectiveness and development effectiveness are
are undercut by illicit financial flows

23. Key recommendations (I)
The commercial component of IFFs
• Trade Mispricing: African countries should ensure clear and concise laws
against mis-stating the price, quantity, quality or other aspect of trade in goods
goods and services in order to move capital to another jurisdiction or avoid
taxation.
• Transfer Pricing: African countries should establish/strengthen transfer pricing
pricing units of their countries of operation.
• BEPS: African countries should establish arrangements for exchange of tax
tax information between them as well as with global partners.
• Regional integration arrangements should be used to introduce accepted
standards for tax incentives.
• Institutional support for these measures: African States should establish or
or strengthen the independent institutions and agencies responsible for
preventing IFFs.

24. Key recommendations (ii)
The corrupt component of IFFs
• IFFs be integrated as a specific component in the AU Convention on Preventing and
and Combating Corruption
• African states should ensure that the public can access national and subnational budget
budget information.
• African countries should adopt best practices in open contracting to reduce IFFs through
through government procurement processes.
• African govts can regularly publish lists of Politically Exposed Persons (PEPs) as well as
well as any asset declarations filed by PEPs and information about whether the country’s
country’s laws prohibit or restrict the ability of their PEPs to hold financial accounts
accounts abroad.

25. FfD Agenda
Issues on FfD3 Agenda
• Raising new development finance through domestic resource mobilisation,

26. FfD Agenda
The real challenge to the Post-2015 Agenda/SDGs is finance
• The grand aspirations expressed in the SDGs doesn’t match the funding (Means of
Implementation)
• Addis Ababa Agenda in comparison to the Monterrey Consensus and the Doha Declaration, is
Declaration, is major retrogression
• Addis Agenda in many ways undermines the FfD mandate to address international systemic issues
systemic issues in tax, monetary, macroeconomic, financial and trade policies.
• FfD3 missed a golden opportunity to address structural injustices in the current global economic
economic system and ensure that development finance is people-centered and protects the
environment.
• FfD3 failed to create an intergovernmental tax body, despite a massive push by a critical mass of
mass of developed countries & CSOs

27. FfD Agenda
Issues on FfD3 Agenda (CONTD)
• The role of the private sector in sustainable development <PPPs>
• The role of ODA
• Country ownership of its development policy - international systems do have a role to
role to play, though, through trade, monetary and financial systems, and strengthened
strengthened global economic governance
• Guidelines for debtor and creditor responsibilities in sovereign borrowing and lending
lending
• Improved data to monitor impact of development spending and progress toward goals
goals

28. Global Transparency Asks
• -Country by Country Reporting
• Automatic Exchange of Tax Information
• Public Registry on Beneficial Ownership

29. OECD final outcomes of the BEPS project on DRM and SDG funding -
• Background of the BEPS project commissioned by G20 in 2013
The G20 mandate for the BEPS project was that international tax rules should be reformed to ensure that
multinational enterprises (MNEs) could be taxed ‘where economic activities take place and value is created’. This
implied a new approach, to treat the corporate group of a MNE as a single firm, and ensure that its tax base is
attributed according to its real activities in each country.
• BEPS represents an important step towards addressing a global problem
BEPS process undermined by exclusion of poorer countries
Large contingent of paid corporate tax advisers & lobbyists & govts seeking to protect their pet tax breaks to
to corporations;
As a consequence the outcomes are:
- (a) weak;
- (b) still leaves loopholes for MNCs to shift profits away from countries where the profits are made
- (c) In effect depress tax revenues

30. OECD final outcomes of the BEPS project on DRM and SDG funding -
• The outcomes are OECD’s proposal for new rules to curb tax dodging by MNCs
Elements of final outcomes:
• Establishes a template for Country-by-Country Reporting (CbCR)
• - But also significantly limits information exchange with developing nations;
• - New measure will further put developing countries at a disadvantage = home country tax
country tax authorities of MNCs mostly in the OECD will receive this information, while
while host countries will not;
• - But unnecessarily imposes an arbitrary reporting threshold of US$75m turnover

31. Elements of final outcomes (CONTD):
• FAILURE of the BEPS Project to comprehensively address
address the problem of corporate tax avoidance:
• Reveals a lack of political will to tackle tax avoidance at
at its root
• Reason why a UN Tax Body is still important requirement
requirement <a key CSO demand at FfD3>
- to serve as a new global institutional forum for setting rules
rules on taxing MNCs that meet the needs of all countries
countries and not only interests of OECD member states and
and their MNCs.

32. CSO Campaign Effort:
• TJN-A has been instrumental in initiating/advancing four key initiatives as part
as part of efforts to widen the conversation:
• African Parliamentary Network on IFF and Tax (APNIFFT)
• Africa Media Training and Award Scheme
• #Stop the Bleeding IFF Campaign

33. #Stopthebleeding Campaign
• Members of the Interim Working Group

34. #Stopthebleeding Campaign
• Launched in June 2015
Main objectives
• To push for implementation of the recommendations of the Mbeki Panel report
report
• Mobilise one million voices behind the demands Standing behind
demands (Call to Action declaration)
• Provide a unified African campaign on IFFs – involves an Interim
Working Group of six Pan-African orgs:

35. #Stopthebleeding Campaign
• Global launch in Addis Ababa July 2015 during FfD3

36. #Stopthebleeding Campaign
• Global launch in Addis Ababa July 2015 during FfD3

37. #Stopthebleeding Campaign
• Nairobi launch June 2015
•

38. #Stopthebleeding Campaign
HOW TO GET INVOLVED?
• Sign up to the Call to Action declaration at
www.stopthebleeding.org
• Sign the physical register
• Use the following Twitter handles: @TaxJusticeAfric and
@stop_IFFs.
• Use the hashtag: #StopTheBleeding
• Visit, like, post and repost the following pages: Tax Justice
Network Africa page -
https://www.facebook.com/TaxJusticeNetworkAfrica?f
• Africa IFF Campaign (Stop the bleeding) page -
https://www.facebook.com/africa.iff.campaign

39. ASANTE SANA!!!
ALVIN MOSIOMA
EXECUTIVE DIRECTOR-TAX JUSTICE NETWORK-AFRICA