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Acting Executive Director, TJNA, Chenai Mukumba, who was at the just concluded 2023 summer school themed ‘Enhancing the Capacity of Civil Society Organisations in Efforts to Curb Illicit Financial Flows’ jointly organised Tax Justice Network Africa (TJNA), WU Global Tax Policy Centre (WU GTPC), and the African Tax Institute, hosted by the Future Africa Campus, University of Pretoria, South Africa, expressed concerns at the exploitation of African continent on issues of taxation by by multinationals.
In this interview , Mukumba explained how multinational enterprises on the continent are exploiting the discordant tunes from African leaders to their advantage. This according to her, has resulted in the poor funding of critical infrastructure like health, roads, education and rising poverty in Africa, among others.
Excerpts:
Why was 2023 summer school themed ‘Enhancing the Capacity of Civil Society Organisations in Efforts to Curb Illicit Financial Flows’ is important to (WU GTPC), the African Tax Institute, and Tax Justice Network Africa (TJNA).
I think for us, we viewed it as important because whilst there has been some strides in curbing illicit financial flows, we think that there’s a lot more that can be done. And we think that both civil society and media have big roles to play. What we noticed, though, was was that with civil society and media, what could be done to improve their role is by enhancing their technical understanding of some of these issues, so that they know for example, the right questions to ask policymakers and people in power, as well, as you know, for media, specifically, the right things to look for when trying to interrogate a case that or an issue that can contribute to IFFs. And so that was the thinking behind the summer school.
How hurtful are some of the treaties African leaders have entered into and what are the remedies?
So in terms of figures, it’s always very difficult to have specificities just because of the nature of illicit financial flows, right? There’s a lot of secrecy that’s happening. And so often, the estimates that exists tend to be a lot less than what’s actually happening. But right now, I think, as I mentioned during the training, the current figure around how much the continent is losing is about $90 billion. And this is because multinational enterprises are finding loopholes. And specifically to your question around double taxation agreements, what happens at times is that multinational enterprises are able to exploit gaps in double taxation agreements, so that at times, they’re not paying tax in any jurisdiction. Which is, you know, the issue of double non taxation we were talking about yesterday. And also some of the double taxation agreements that African countries have signed, either with it with themselves or with other countries were signed many years ago, right before the clauses that are now helpful to prevent illicit financial flows. Were within the models, right. And so those are some of the different ways that double taxation agreements are allowing or supporting illicit financial flows.
How would you rate efforts by CSOs in curbing IFFs in Nigeria?
I would say civil societies in Nigeria are quite strong. We have a member in Nigeria, CISLAC, that’s been playing quite a big role to hold governments to account. And I’m sure you’ve been seeing some of the work that they’ve been doing. But of course, you know, as with all of these things, there’s always a lot of work for civil societies to do in their respective countries with themselves, right, so we encourage civil society organisations to create national tax platforms. So that it’s not just themselves, but there’s a whole grouping of civil society organisations that are working together to curb illicit financial flows. And I think also by further enhancing the relationship that they have with the media could really play a big role in curbing illicit financial flows.
Some participants had suggested that African leaders should lower the Corporate Income Tax (CIT) to be able to attract more investment instead of companies taking their profits to countries with low rates of taxation. What do you think?
Yes, I think it’s a real issue. I think a lot of governments find themselves feeling that they have to do that, right. And this is because at times multinational enterprises will go to them and say, will only come if you give us this rate. And then sometimes they’ll even say, if you don’t, we’ll go to these guys who are giving us thisCIT rate, right. And so many governments then do that right, in order to then attract them and reduce the tax burden of those multinational enterprises. But what we’ve been trying to say is that, you know, to address this issue of that tax competition, right, African countries actually need to work together, so that they don’t have alternatives, right for where to go.
So if, if all African countries say that, you know what, we will not be giving a corporate income tax rate of less than, say, 25%, then there’s no ways in the knees can then pit them against each other. But also, there’s no competition, because there’s a grip, that’s where tax cooperation can really come into play. But up until that’s the case, you will see that continue to happen. As an institution we’ve been seeing, for example, in Rwanda, they have established Kigali International Financial Center, where they are offering tax rates as low as 0%, right to attract. And so you can imagine when other countries in the East African region are trying to attract investors into their countries, and then they say, well, Rhonda is giving us zero, what are you giving, they’ll also feel pressure, right. And unfortunately, the lower your CIT rate, the less your ability to raise resources through that.
So it’s what countries are doing, but we don’t think it’s the best way to do it. The best way really would be factoring in countries to talk to each other. So that that doesn’t become an issue. But unfortunately, that’s the case. With the tax havens, what happens there really is not so much that multinational companies are saying, well, I become to you or go to Mauritius, what’s happening with the tax havens, is that countries, for example, will exploit the looks like there’s a double taxation agreement here between Mauritius and Nigeria or Mauritius and whatever, right. And then what they’ll then do is used by double taxation agreements that they can benefit from the low income tax rate, say in Mauritius. So that’s why we always say to countries, you need to think twice before you sign DTA with a particular low tax jurisdiction, right? Because at the end of the day, you could end up being penalised, right?
So we don’t generally encourage many kinds of thinking about it, but we’re seeing it, it doesn’t have to be that way. Because you can consider this oil in Nigeria, right? Where else are they gonna go? If not Nigeria for the oil, right. And so if countries take their stand, at the end of the day, they will have to acquiesce? Right. And so that’s why we tried to get governments to start thinking about.
Has governments’s response been encouraging thus far?
I mean, you know, I think sometimes it’s touch and go. Sometimes the governments are responsive, sometimes they’re not. It depends often on remember, what one of the facilitators, Professor Annet, was saying, if there’s something happening, that has the public aware of a situation, right, that then has the public demanding certain actions on the government, that’s when you’re most likely to see certain movements on the part of the government. So I know in Nigeria, for example, I think Nigeria is one of the few countries there was a mining contract legislation. I think that was passed, I think was either last year or year before on beneficial owners should.And so I know that’s something for example, we’d work closely with CISLAC and other partners, to see how they can sort of push for that kind of thing. And I think in Nigeria, increasingly, you’re seeing people starting to say, you know, where’s all the wealth? Right. And so because of that citizens, CSOs can ride on sort of deploying public sentiment to start to now challenge their leaders, right?
You remember, I was saying often the work that we’re doing, it’s most effective if we’ve managed to win in the court of public opinion right. The way the public is saying actually, that’s, that’s right. This often is not just a technical issue. You’ve heard me say it’s also a political issue. So those dynamics, I think, if they come to play together, that’s when the most affected just stop me if you’ve got any other any questions they didn’t all rights.
The Independent Corrupt Practices and Other Related Offences Commission (ICPC) had estimated that Nigeria loses $10 billion to illicit financial flow, while 20 percent of the $50 billion lost to illicit financial flow in Africa is from Nigeria. This shows that a lot needs to be done to address IFF in Nigeria. How far more can capacity enhancement of civil society organisations help to help curb IFF in Nigeria?
Is it enough? No, I think the way we are going to deal with this issue of IFFs requires a whole host of different stakeholders, right? It will require policymakers to come to the table. It requires our members of parliament to also you know, participate. It requires Soul Society and it requires the public, right? What we’re trying to do is build the capacity of the civil society role in curbing illicit financial flows, because at the end of the day, we can’t change legislation, right, that has to be done by the government. But we think by enhancing the role of civil society, you can, you can do that. Similarly, by working closely with guys in the media, who can raise The awareness of these issues, they can then help generate the public demand and raise the public awareness of these issues.
So civil society alone, no. But in concert with all these other actors, which can be quite effective. And I think to your point, you’re right, I think a significant part of IFFs is Nigeria. So really, I think it speaks to the importance, probably almost more important than any other country, Nigeria really, really needs to work to addressing this issue. And that’s why for us, we were putting together the school, we were like, it’s so important. We have quite a civil society rep and a , media from Nigeria.
What can CSOs do to reduce or stop these losses and how can they better tackle IFFs in Nigeria?
So we always say CSOs can do four things. The first generate research. Start to put together credible publications that speak to how big and how serious this problem is. That’s the first thing. The second, do advocacy, right? So with that research that they’ve generated, that’s credible and accurate, start to engage people in power in positions of power, right? Ministry of Finance, Revenue Authority, but also even sometimes the guys that are not most obvious, because I know in some countries, there’s work around, maybe let’s start talking to the Ministry of Health. And there is no to that is the Ministry of Health and say you want to be concerned about this issue? Because if we’re able to generate more money internally than this potentially more money that can go to health issues, right. So sometimes even some of those other sectors are important. So that’s on the advocacy. Then we also say the issue of capacity building, right? So if for example, says like, is an institution that’s leading on this work, working with other civil society organisations, right, I think is important, because one of the things you want to do is build a critical mass of civil society organisations that understand these issues, right. So capacity building of other civil societies, as the building of members of parliament, and other very key actors, right. So that’s the third thing societies do. And then the fourth, we always say campaigning right, once it’s all societies are aware, get those civil societies to also start to raise awareness of the public, right. So I keep saying some of these things several times. But those four approaches we think are some of the ways that civil societies can work.
A lot of finances have illegally found their way into the hands of terrorists threatening the peace and development of the country and economy, usually through kidnapping for ransom. Despite signing the money laundering prevention and prohibition act (2022), terrorism prevention and prohibition act (2022) and the proceeds of crime act, (2022), recently terrorists were reported to have flaunted the redesigned naira notes which are scarcely in circulation across the country. How can Civil Society Organisations best address this situation?
How would you rate the engagement of participants?
So I think, I think there’s a couple of things. Firstly, in this room, the participants are at different levels, in terms of understanding of some of these issues. So I think there’s definitely interest on the part of the participants, because all of them want to learn, I think these issues. And so I think when the participants have been able to engage with material, it’s been really, really interactive, which I think has been really great. But I suspect most if not all of the participants after this problem, they’re going to go back and look at the slides, slowly, you know, at their own pace to go through that. But I think for us, one of the things we’re going to do is, starting June, we’re going to start running an International Tax Justice Academy, where we can have all sorts of stakeholders attend. And what we’re going do is we’re going to have it so that there’s different levels, right, so we’re going have beginners, so people who have never engaged the text, but they’re interested guys intermediate who’ve done some engagement, and then at Advanced, and I think that will probably be also.
How can the media really come in because most of the times, we just report figures, as announced by government. So don’t really understand how this can be related to maybe more schools, more hospitals, roads and all that? How would you advise those in the media to navigate this? And tell the story so vividly, that the public can own it?
So I think I think you’re right, I think one of the things that media does much better than civil society is that often you guys are putting on stories with public in mind, right? Whereas when we put out our policy, principle obligations, that bulky, and often, you know, we’re trying to put information that’s going to change a policy somewhere. And so there needs to be a lot of numbers and figures.
So what I would I would suggest is, you know, for the media, taking these documents, and then you are the best to identify that this is something that’s really going to speak to the public, right? And then potentially even then working with the civil society organisation to say, I’ve seen this failure helped me figure out what does this mean, in terms of how many hospitals have not been built? Or what does it mean for how many kids have not gone to school? Remember in one of the presentations from a rep of Tax Justice Network in Africa, had some figures of about how many kids could have gone to school, if we had raised sufficient revenue, you see what I mean? So working with your site organisations to help translate that, but you are the best place to know that this number, if I turn it into how many roads or if I turn it into how many nurses because I know that some civil society organizations during COVID, what they did is they looked at the amount of money that was being lost, like tax avoidance and said, What does this mean? How many nurses could we have employed? And of course, at that time, everybody wants to know, the doctor ratio, do you know what I mean? So taking a look at what’s the context, what are people most right now upset or passionate about? And then translating those figures into those things. So I think that I would say is the most important thing.
But also, I would want to say that some of the biggest changes we’ve seen in condiment IFFs have been as a result of media action, right, all those leaks that you had Pandora, Panama, is ICIJ that’s working with me to institutions. And they you see a different situation because now we’re civil society, are using the information that the media is putting out and profiling. Right. So it’s a mutually beneficial relationship where you can rely on civil society to help turn some of these numbers, but also even a civil society, we can rely on some of the investigative work that you’re doing.
When other facilitators were talking, you made mentioned of African leaders, African countries lacking in capacity when it comes to tax issues. So what would you advise government to do? Are they examples to showcase so that other African countries can learn from?
I think for us, first of all, we understand that African countries, at present have limited resources, right. But for us, we are of the view that in order to address this issue of limited resources, you need to put what you have into the agency that’s going to help you increase these resources.And right now, those are our tax administration’s right, our revenue authorities. So for us, the issue of capacity exists, right? One of the ways you can tackle that is by adjusting your priorities. Just thinking this year, let’s not put money in military defense. This year, let’s put money in the Revenue Authority so that we can increase the quality of our staff, the number of people within administrations. I think you’ll remember, someone had that thing. I should not don’t remember the numbers, you can maybe speak to how many officials versus the population, right. And I think Nigeria has some of the most starkest figures areas. So for us, right? Those are one of the ways that we think let’s, you know, to deal with the capacity. It’s a policy prioritisation issue where we’re saying, let’s put money because if you put money here and you start to address these IFFs issues, that you’re going to increase the amount of money that we have, and as a result, you then have money, more money to put into other areas. Right. So I think for us, that’s that’s some of the thinking, we think would help right addressing this issue.
*This article was first published on the Sun News Online.