Mr. Logan Wort is the Executive Secretary, African Tax Administration Forum (ATAF), the umbrella body for tax administrators across Africa. Ibrahim Apekhade Yusuf and Nduka Chiejina spoke with the tax expert in Johannesburg, South Africa, on the sidelines during the maiden media exchange with tax authorities drawn from 25 countries, where he shared his views on the rising incidence of illicit financial outflows in Africa, tax evasion amongst other sundry issues. Excerpts:
Africa economy has suffered a lot of privation as a result of illicit financial outflows estimated at over $1.4trillion in the past 30 years and still counting. What is your take on this?
In our definition, illicit financial flows are part of that other than government corruption which contributes according to the High-Level Panel 15% of total losses. And tax crime and criminal activities constitute further 35% of the losses. All of the other losses come from corporate behaviour and a big part of that is tax avoidance and tax evasion. However, tax avoidance is a bigger loss than tax evasion. Under transfer pricing, there is under-invoicing at the borders would be some of the key reasons why we have almost 66% of total illicit financial flows losses coming from Transfer Pricing activities. And so through the programme we’ve had over the past two years fixing the rules and then assisting in the capability in three of the countries we’ve worked in, we managed to get just under $120million in taxes back. These are taxes that would not have been paid if the rule was not in place. And then in the process of our country programme we do enable where the tax treaties are weak help write domestic policies that can defend the tax base. One of such examples is in Uganda, where although we were not involved in writing that legislation to illustrate the value of good legislation policy. Uganda has a capital gain tax legislation. But not many countries in Africa have capital gains tax legislation. So when a British International Oil company bought a Ugandan oil company and there was intercompany transaction, they took the Ugandan government to court for taxing them and the court avowed the fact that they owe Uganda and they’re to pay the Uganda Revenue Authority (URA) more than $400million. And the only reason that was possible was because of the simple capital gains tax legislation in place. If they (URA) didn’t have that tax, they would have lost more than $400million. How many people can you feed with $400m? How many farms can you recapitalise? How many hospitals can you build or roads?
So how this menace be addressed?
When it comes to illicit financial flows, there are two ways you can respond. You can go to the headlines and say, we lose $1trillion over 30 years, or $500m and all that from a first world company and we’re not been treated fairly… That has been Africa’s approach over the years. Or we can do something about it. And it’s about understanding what is within your control and what is within your control is always around your own country. You’ve got your parliament, you’ve got your ministers, you’ve got your own civil society and your own local businesses. Therefore, you can make your own rules. Tax is a sovereign matter; you do it within the context of what is going on in the rest of the globe. So that you don’t offer tax rate that is uncompetitive to others and you don’t have oil and gold, other extractive deals that is not open to everyone to see, everybody can see where all the monies going. The more there’s good governance, the more there’s transparency, the more your tax rates are reasonable and especially if your tax authority service and administration are responsible and friendly, it increases your ability to collect revenue because your laws and your policies closes the loopholes and then you’ve got the friendly bunch of administrators that is doing the collection. And that is where the African government needs to improve on; it needs to provide the right incentives for revenue officers as well as invest more on tax administrators and all that.
African Tax Administration Forum (ATAF) will be 10 years next year. Could you bring us up to speed on how it all began, where you’re now and your projection for the future?
ATAF, came about when in 2008, heads of tax in 24 African countries got together and looked at some of the challenges facing domestic revenue mobilisation on the continent and the fact that there is the need for African countries to collaborate on strengthening Africa’s own revenue capabilities. And since then up to the launch in 2009, in Kampala, Uganda, we set out to prove a number of things to ourselves. One, that the continent is capable when it collaborate with each other to train and build capacity in tax policy and administration and also to increase its ability to collect revenue and thereby reducing our dependent on official development assistance and aids (ODA).
The big problem at the time and still is, to a large extent is that if you compare Africa’s tax to GDP ratio to that of developed countries; developed countries have a tax to GDP ratio of over 30%. In Africa, the average of the tax to the GDP ratio is less than 15%. Even in those countries where the tax to GDP ratio like Libya during the time of Muammar Gaddafi even in Nigeria with the tax to GDP ratio including oil would be sky-high but less than 30%. And that is rather artificial because if you take oil out of the equation, because in many cases the citizens don’t benefit from the proceeds of the oil. If you take the oil out of the equation, in a place like Libya, there’s hardly anything left. In fact, if you look at Nigeria, the nonoil tax to GDP ratio up till last year has been around 4%. So the country only collects 4% of its GDP in taxes. What has been significant in Nigeria is that great leadership by the chairman of the Federal Inland Revenue Service (FIRS), Babatunde Fowler, has brought in. In that I do expect that within this year, tax to GDP ratio in nonoil in Nigeria could rise as high as 12% from 4%. And that is a level of growth you’re not going to find anywhere else.
And we in ATAF have been very pleased to be part of the process to build capacity in the Nigerian International Tax Department and also FIRS employs some great people both in Lagos and Abuja in the Federal Tax Department. And so that is what ATAF set out to do. I think part of the difficulties in the beginning was that you know as Africans we often don’t believe in ourselves. And we started this group called ATAF, I think a lot of people just watched to see where this thing is going. Fortunately, we had partners who invested money like the German government, the Swiss government, initially the British and Norwegian governments (but they are currently giving us technical assistance). The Irish, the Netherlands and later the Danish and the Finland governments invested in this programme together with our host, the South African government as adopted ATAF as its headquarters and they contribute about 40% of our total income. And then of course, we’ve got membership fees that give us 30%. Since inception nine years ago, we have been able to train more than 4,000 African tax experts and officials. We’ve graduated in our own Executive Masters in Taxation Degree programme, more than 86 Masters Graduates who are currently in tax management across the continent both in French and English. And we do these degrees with universities in South Africa, Berlin, in Germany, Dakar, Senegal, and Port Louis in Mauritius.
In addition to that, we’ve hosted over three years, more than 900 tax policy advisers, researchers, academics and scholars in three internationally acclaimed tax conferences. At these conferences, we presented more than a 160 academic papers on tax in Africa; we’ve just published them in a working paper series and no African leader, African minister, African Ministry of Finance now no longer need to look further to the west for research or policy advise, we’ve developed that. And those are some of the few things we’ve done over the past nine years including some very operational products that African countries are already using. One of it is a double taxation treaty module for Africa because we’ve realised that a lot of African taxes have been signed away in poorly negotiated tax treaties. Tax treaty is a treaty by which two countries agree who will get the share of tax on a particular area of taxation and most of the African tax treaties are signed just post colonial days and have never been changed. And in most cases, tax rights have been forfeited to the other countries. We’re changing that. The other thing that we have done is to develop a Transfer Pricing set of rules and regulations. Transfer Pricing is the cause of the biggest losses for Africa’s tax income. And by shifting a few changes in the policies and the rules, we’ve been able to get back taxation from multinationals that they would have paid if the rules were there. So they did not just want to pay it, it’s just that the rules allowed them not to pay it. We fixed those rules and now they’re willingly paying it and so through fixing very small pieces of legislation and rule, we’re able to get money back.
In your opinion how can Africans improve the continent’s tax ecosystem?
In relation to expanding the tax ecosystem in the continent on the economic situation, I think over the last 10 years, Africa has come quite far in dealing with some of the deficits in domestic tax regime. One of the things is that largely in English speaking African countries the tax department in the ministry of finance has moved out into an independent revenue authority; as it’s governed by its own board who can offer competitive salaries and can invest in training. That has been a significant thing that has happened in the continent. And where this has happened, revenue collections and skills have improved. In countries where they still operate under the Ministry of Finance, it has also improved because I’m just saying they’ve their differences and it’s largely got to do with the administrative cultures in Anglophones, in West Africa where countries like Nigeria, Ghana been the strongest English speaking, Gabon and Gambia. I think part of the ecosystem that we’re talking about is globalisation. Now part of the globalisation is the role is the fact that in a developed world, manufacturing in the hard context of where production takes place, is a shift long time ago, first from Africa then to Asia. And so the production that generated income and the tax is no longer coming in but going outside. How do then benefit from the fact that when they are looking for a certain type of turkey, they look to china or Bangladesh, where they retain the intellectual property.