Ghana on the average loses US$1.4 billion annually in the natural resources sector to illicit financial flows (IFFS), a report has indicated.
The report indicated that over a 10-year period, from 2002 to 2011, cumulative gross illicit flows from trade misinvoicing in the country amounted to US$14.39 billion.
IFFs refer to money that is illegally earned, transferred or utilised. If it breaks the laws in its origin, movement or use it merits the label, according to the GFI.
A tax expert, Mr Abdallah Ali-Nakyea, has said that looking at the stated figures, it was unnecessary for Ghana to go to the International Monetary Fund (IMF) to borrow US$930 million for three years.
“So, you see we don’t need to borrow because if you are losing US$1billion and you are borrowing on average US$330 million a year, are you a net creditor or a net debtor?” he asked, at a workshop for selected members of the Institute of Financial and Economic Journalists (IFEJ) in Koforidua in the Eastern Region, on Mineral Revenue Management in Ghana.
The report by the Africa Centre for Energy Policy (ACEP) on IFFs and the extractive industry in Ghana stated that in 2013, IFFs from illegal mining alone cost the nation US$1.7 billion.
“That’s the value we are losing to galamsey. They are not registered, they don’t pay tax, they don’t eat gold, they don’t bank in gold, but they produce this value and its nowhere to be found. Where did it go? What did we get in return?’ he asked.
He said developing countries had weak tax systems that also contained several tax incentives that were a subject of abuse and misuse.
He stated that in Ghana, the natural resources sector was a significant area of concern in the above regard, and imports and exports also showed such IFF tendencies, through over-invoicing and under-invoicing.
“One of the ways of IFFs was trade mispricing and that is the challenge Ghana has in the mining sector if they overprice the inputs they are using because that increases cost and then it will reduce profit, or else, they could increase the price of their assets and they can get higher capital allowances,” he said.
ACEP also estimated that from 1960 to 2012, IFFS through trade misinvoicing in Ghana amounted to US$40 billion.
IFFs in Africa
It is estimated that Africa is currently losing over US$50 billion annually in illicit financial flows (IFFs).
Over the last 50 years, up to 2014, Africa is estimated to have lost over US$1 trillion in IFFs, the sum of which is almost equivalent to all the official development assistance received by the continent within the same period.
Experts say key sources of IFFs include money laundering (disguising the flow of funds through commercial financial transactions) and tax evasion.
Three causes of IFFs from Africa are: Commercial activities (60 per cent-65 per cent), which arise primarily from business-related activities; Criminal activities (30 per cent -35 per cent) e.g. drug trafficking and smuggling; and Corruption (3 per cent) e.g. bribery and embezzlement.
In relation to commercial transactions, Mr Ali-Nakyea, Mr Ali-Nakyea, who is also the Managing Partner, Ali-Nakyea and Associates, indicated that multinational enterprises exhibit more tax evasion tendencies by using transfer pricing, as well as offshore branches and subsidiaries mostly located in tax havens.
“International trade is the dominant activity by multinationals, hence, the need to have very robust transfer pricing regulations to check any abuse by way of trade mispricing. Most of our countries either have weak transfer pricing regulations or none,” he said.
Dealing with IFFS
Mr Ali-Nakyea explained that those activities of IFFs influenced the provision of public services such as schools, water and social protection.
“The lost opportunities impact negatively on growth and ultimately on job creation in Africa because profits are illicitly transferred out of African countries,’’ he said.
He added that there was the need to keep a database of importers and exporters to help weed out the dubious ones who engaged in trade mispricing.