It has been reported that Africa loses a staggering $88.6 billion each year due to illicit financial flows, this is a significant amount, considering the continent’s GDP stands at $3 trillion. Such losses are detrimental to the region’s economic growth and development, according to experts who assert that if this money remained within the continent, it could be channeled towards fostering economic development, attracting foreign direct investment, and supporting overseas development assistance.
These illicit financial flows, as defined by Global Financial Integrity, involve the illegal movement of money from one country to another, often through methods like money laundering, tax evasion, and other illegal activities.
For Africa, the $88.6 billion leaving the continent equates to losing $100 for every $1 received as overseas development assistance. It’s a considerable loss that hinders progress. Dr. Ibrahim Mukisa, a senior lecturer at Makerere University, highlights that various measures have been taken to combat illicit financial flows in Uganda.
These include engagement through international organizations like the Global Forum and the African Union, as well as the enactment of legal reforms to counter such activities.
However, despite these efforts, some challenges remain, primarily relating to double taxation agreements (DTAs). Faridah Bahemuka, legal counsel at the Ministry of Finance, acknowledges that some DTAs are misused and no longer serve the purpose of promoting trade. They have been exploited for corporate inversions, enabling individuals to take advantage of tax treaties between different jurisdictions. Such misuse, including “treaty shopping” and “round-tripping,” poses significant challenges and contributes to the outflow of funds from Africa.
In light of these concerns, Uganda’s Ministry of Finance is working on the renegotiation of double taxation agreements with various countries, including Mauritius and the Netherlands. This effort is part of a broader strategy to curb financial malpractice and bolster the country’s economic stability.