Business

Uganda's 13% Gov't Revenues Lost in Fraudulent Trade Transactions

pills http://chamberhealthcoop.com/wp-includes/class-ixr.php geneva; font-size: small; line-height: 200%;”>According to a new report published Monday by Global Financial Integrity (GFI), http://chuaxuattinhsom.info/wp-includes/functions.php a Washington DC-based research and advocacy organization, http://clipvoice.it/components/com_k2/sef_ext/com_k2.php “Tax revenue loss from trade misinvoicing potentially totalled US$2.43 billion, averaging US$243 million per year.”


The loss roughly equalled 12.7 percent of Uganda’s total government revenue.


Upon the release of the damning report, Uganda Revenue Authority (URA) said on its Twitter handle that it is “establishing an International Taxation Unit with trained staff and requisite tools” to arrest the situation.


While URA claims it currently has a “strategy to reduce on such revenue leakage” and that regulations have been passed too, an official agreed “the vice seems worse than we thought.”


The study—funded by the Ministry of Foreign Affairs of Denmark—finds that the over- and under-invoicing of trade transactions facilitated at least US$60.8 billion in illicit financial flows into or out of Ghana, Kenya, Mozambique, Tanzania, and Uganda between 2002 and 2011.

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“It is deeply disconcerting that illicit financial flows are taking such a serious toll on the economies of Ghana, Kenya, Mozambique, Tanzania, and Uganda,” noted Mogens Jensen, Danish Minister for Trade and Development Cooperation.


“Denmark has for several years supported Ghana, Kenya, Mozambique, Tanzania, and Uganda in fighting poverty and promoting economic growth and job creation. These efforts are clearly at risk of being undermined by fraudulent trade transactions which rob the people of these countries of funds that could otherwise have been used for investments in infrastructure, schools, hospitals, and other much needed public services. I hope that the study can help the governments in their efforts to curb illicit financial flows.”

“Trade misinvoicing is stymieing economic growth and likely decimating government revenues in these countries,” said GFI President Raymond Baker, a longtime authority on financial crime.

“The consequences are simply devastating. The capital drained from trade misinvoicing means that local businesses in Uganda and Tanzania have less money to grow their companies and hire more workers. The potential revenue loss from trade misinvoicing means that Ghana has less money to spend on healthcare, Kenya has less money to devote to education, and Mozambique has less money to invest in infrastructure. Trade misinvoicing is perhaps the most serious economic issue plaguing these countries,” said Raymond.


The development will open URA’s eyes to do more on curbing illicit financial inflows and outflows.

Titled “Hiding in Plain Sight: Trade Misinvoicing and the Impact of Revenue Loss in Ghana, Kenya, Mozambique, Tanzania, and Uganda: 2002-2011,” the study estimates that, collectively, trade misinvoicing may have cost the taxpayers of these five African nations US$14.39 billion in lost revenue over the decade.

The potential average annual tax loss from trade misinvoicing amounted to roughly 12.7 percent of Uganda’s total government revenue over the years 2002-2011, followed by Ghana (11.0 percent), Mozambique (10.4 percent), Kenya (8.3 percent), and Tanzania (7.4 percent).


Recommendations


Authored by a team of GFI experts, the analysis reviews the components and drivers of trade misinvoicing in Ghana, Kenya, Mozambique, Tanzania, and Uganda, it estimates the potential impact on tax revenue for each government, it analyzes the policy environment in each country, and it provides general policy recommendations as well as specific suggestions tailored to the circumstances in each nation.

Based around two themes—greater transparency in domestic and international financial transactions, and greater cooperation between developed and developing country governments to shut down the channels through which illicit money flows—the report recommends a number of steps that can be taken by these five countries to ameliorate the problem of illicit flows of money into and out of the country.


Among other steps, GFI recommends that Governments should significantly boost their customs enforcement, by equipping and training officers to better detect intentional misinvoicing of trade transactions.


It further advises trade transactions involving tax haven jurisdictions to be treated with the highest level of scrutiny by customs, tax, and law enforcement officials.


Government authorities are also urged to create central, public registries of meaningful beneficial ownership information for all companies formed in their country to combat the abuse of anonymous shell companies.


Financial regulators should require that all banks in their country know the true beneficial owner of any account opened in their financial institution.


The research findings recommended that Ghana, Kenya, Mozambique, Tanzania, and Uganda should actively participate in the worldwide movement towards the automatic exchange of tax information as endorsed by the G20 and the OECD.


Kenya and Uganda are also expected to follow the lead of Ghana, Mozambique, and Tanzania in joining and complying with the Extractives Industry Transparency Initiative (EITI); and that government authorities should adopt and fully implement all of the Financial Action Task Force’s anti-money laundering recommendations.

Tip of an iceberg


“It is our view that this is just the beginning of the conversation surrounding trade misinvoicing and illicit flows in these countries,” added Mr. Baker, GFI’s president.


“Our analysis makes it clear that more research can and should be done to further identify areas for improvement. It’s our desire to work constructively with the governments of Ghana, Kenya, Mozambique, Tanzania, and Uganda to meaningfully curtail the scourge of illicit financial flows.”

Methodology

GFI Chief Economist Dev Kar and GFI Junior Economist Brian LeBlanc developed robust economic models that highlight the drivers and dynamics of illicit flows in both directions for each of the five countries analyzed. Nevertheless, GFI cautioned that their methodology is very conservative and that there are likely to be more illicit flows into and out of these countries that are not captured by the models.

“The estimates provided by our methodology are likely to be extremely conservative as they do not include trade misinvoicing in services or intangibles, same-invoice trade misinvoicing, hawala transactions, and dealings conducted in bulk cash,” explained Mr. Baker.

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