close

Newsroom

Trade mis-invoicing costs African nations billions of dollars

28th May 2014

MGI World Trade mis-invoicing costs African nations billions of dollars

Trade mis-invoicing is one of the most pressing challenges for African nations, according to a new study.

Washington-based think tank Global Financial Integrity (GFI) claims $542 billion worth of capital was lost from developing countries in illicit capital flows. It estimates that almost 80 per cent of this was the result of trade mis-invoicing.

The report, entitled Hiding in Plain Sight, looked at invoice practices in Ghana, Kenya, Mozambique, Tanzania, and Uganda. It warns of “a global network of secrecy jurisdictions and complex, opaque corporate and account structures” that are robbing countries of investment.

“We find that trade mis-invoicing is a significant source of illicit outflows and inflows of capital in each country, resulting in billions of dollars of lost investment and hundreds of millions of dollars in unrealised domestic resource mobilisation,” said GFI.

The researchers estimate that, per year over the ten-year period of the study, Ghana lost $386 million, Kenya lost $435 million, Mozambique lost $187 million, Tanzania lost $248 million, and Uganda lost $243 million in potential tax and tariff revenue.

A number of different methods were identified by the report. Export under-invoicing relocates profit to another jurisdiction to lower year-end corporate taxes paid in the country of export. A second approach is export over-invoicing, which enables a company to collect extra export subsidies or tax credits. It also secretly moves additional capital into the country of origin.

Import under-invoicing on the other hand, reduces the amount of tariffs and value added taxes (VAT) a company is liable for. A fourth pratice, import over-invoicing, artificially increases the importing company’s input costs and lowers its corporate taxes paid to the government.

Tackling transparency is important for these countries and other developing nations. Opaque accounting practices hinders foreign investment and obstructs growth. “Curtailing trade mis-invoicing and tackling the corresponding shadow financial system would be a boon for existing efforts to boost economic development and domestic resource mobilisation, strengthen accountability and the rule of law,” the authors concluded.

The GFI study comes after a report from Christian Aid found a substantial amount of sub-Saharan Africa’s income and wealth has “escaped offshore”.

Read more on Industry news and Africa

MGI World Montage with elements from the flags of China and Korea

MGI Worldwide CPAAI firms continue to have a voice in international publications! In the latest edition of the IAB, our members in China and Korea contribute to key articles

7th September 2021

As a top-ranking global network, it is great to see MGI Worldwide CPAAI members continuing to...

MGI World Graphic elements of Kenya's country insight

Don't miss the latest Country insights from Felix Kimoli talking about recent developments in the Kenya accounting market and the impact of the global pandemic

25th August 2021

Felix Kimoli, from MGI Alekim in Nairobi, recently took the time to share news about tax-related...

MGI World Handshake between Australia and india flags painted on hands

Member firms in Australia and India comment on SME loans, tax reforms, and regulatory changes in the July edition of the IAB

3rd August 2021

The July edition of the International Accounting Bulletin (IAB) has been published in which member...