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Africa/Global: "Stop the Bleeding" Updates

AfricaFocus Bulletin
June 22, 2016 (160622 )
(Reposted from sources cited below)

Editor's Note

"A new report by Tax Justice Network-Africa and ActionAid says that East African countries (Tanzania, Kenya, Uganda and Rwanda) are losing approximately $2 billion a year of revenue each year by granting tax incentives to multinational companies. ... According to Yaekob Metena, ActionAid Tanzania's country director, 'Though there have been improvements in recent years in addressing the issue, governments in East Africa continue to give away domestic resources in tax incentives, funds that could pay for the regions' education and health needs and meeting the development objectives.'"

This AfricaFocus Bulletin contains a press release on this new report from two of the organizations actively involved in the Panafrican civil society campaign to stop illicit financial flow from the African continent, which has been endorsed by the African Union and is gaining worldwide momentum from a series of reports from the Panama Papers and other investigative journalism.

The first report, on tax incentives, concentrates on the legal but illicit policies that enable bleeding of resources from Africa to multinational corporations through tax breaks. The second, from the UN Environment Programme and Interpol, highlights the rapid increase is losses due to black-market environmental crimes such as ivory smuggling, illegal logging, and toxic waste disposal. Such crimes are now the 4th largest illicit enterprise sector worldwide, following drug smuggling, counterfeiting, and human trafficking,

For brief talking points and previous AfricaFocus Bulletins on illicit financial flows and the Stop the Bleeding Africa campaign, visit http://www.africafocus.org/intro-iff.php

For a database of articles and reports on illicit financial flows, provided by the Stop the Bleeding Campaign but including data from many sources, visit http://iffoadatabase.trustafrica.org/

For another hard-to-excerpt but revealing expose released today, see Finance Uncovered's investigative report on the shady financial dealings holding up the renovation of the Rift Valley Railway (RVR). The report is entitled "Trouble on the Lunatic Express," and results from a collaborative investigation by Kenyan, Belgian, and British journalists. See http://www.financeuncovered.org/ - direct URL: http://tinyurl.com/zz5v77d

"We have discovered that the fabled RVR modernisation programme has not resulted in the purchase of new trains as claimed by the owners of the railway, Qalaa Holdings.

We have trawled accounts which show that Qalaa has created an offshore structure of shell companies which has extracted millions in advisory fees from RVR, despite the railway suffering losses in recent years."

++++++++++++++++++++++end editor's note+++++++++++++++++

East Africa losing up to 2 billion dollars to unproductive tax incentives

Governments have taken few positive steps to curb loss of revenue

http://www.taxjusticeafrica.net / direct URL: http://tinyurl.com/gmrmhde

http://www.actionaid.org / direct URL: http://tinyurl.com/hthr9dj

Dodoma, 18 June 2016 - A new report by Tax Justice Network-Africa and ActionAid says that East African countries (Tanzania, Kenya, Uganda and Rwanda) are losing approximately $2 billion a year of revenue each year by granting tax incentives to multinational companies. The report follows the EAC report series produced by the two organizations in April 2012, examining the impact of tax incentives on the region and giving recommendations to the EAC on how to end a race to the bottom. This follow up report assesses what has changed since 2012.

The report, entitled 'Still Racing towards the Bottom? Corporate tax incentives in East Africa', states that while statements indicating commitments to revise tax incentive policies have been made by policymakers of the region, many questions abound on how eliminating tax incentives will be realized. It is unclear how these tax incentives will be revised, costed and phased out in practice and what resources and expertise are at the disposal of the governments to carry out this work.

According to Yaekob Metena, ActionAid Tanzania's country director, "Though there have been improvements in recent years in addressing the issue, governments in East Africa continue to give away domestic resources in tax incentives, funds that could pay for the regions' education and health needs and meeting the development objectives."

East African governments have taken some positive steps to reduce tax incentives, especially those related to VAT, which are increasing tax collection and providing vital extra revenue that could be spent on providing critical services. However, they are still failing to eliminate all unnecessary tax incentives. Countries are still providing generous tax breaks in the form of tax holidays, capital-gains tax allowances and royalty exemptions and these East African countries continue to lose colossal amounts of revenue through unnecessary tax exemptions and incentives given to corporations.

"There is need to shift the policy environment in the region on the issue of incentives as; political and financial national and institutional authorities have admitted that tax incentives are in fact harmful to domestic revenue mobilization and need to be revised, costed and in most cases eliminated. In fact, as our report shows that giving tax incentives is still fueling competition at 1the EAC level, and derailing any meaningful progress towards regional harmonization of tax policies. Regional competition for investors through providing tax incentives is still alive and is undermining integration," said Metena.

The report follows the EAC report series produced by the two organizations in April 2012, examining the impact of tax incentives on the region and giving recommendations to the EAC on how to end a race to the bottom. This follow up report assesses what has changed since 2012. "Many leaders are promising to take greater measures towards progress on this in the region but there is a need for tangible actions to be taken towards that end," said Tax Justice Network-Africa's Deputy Executive Director, Jason Braganza.

Evidence gathered suggests that collectively, the four East African countries (Kenya, Uganda, Tanzania and Rwanda) could still be losing around $1.5 billion and possibly up to $2 billion a year. The report calls for East African governments to review the tax incentives they are granting with a view to abolishing all unproductive incentives. Any incentives that are determined to be effective should be targeted at achieving specific social and economic objectives that benefit East African citizens.

"The East Africa Community (EAC) must accelerate the harmonization of its tax legislation with the EAC Agenda by ratifying the East African Code of Conduct on Harmful Tax Competition and implementing at national levels, the recommendations of the African Union High Level Panel on Illicit Financial Flows that was adopted at the AU Summit in January 2015," added Braganza.

ENDS

Paulina Teveli
Communications Coordinator - ActionAid Tanzania
Tel: +255 (0) 22 2700596 | Mob: +255 755 706322
Email: Paulina.Teveli@actionaid.org.

Michelle Mbuthia
Assistant Communications Officer - Tax Justice Network-Africa
Tel: +254 724 994796
Email: mmbuthia@taxjusticeafrica.net

Editors' Notes:

Four countries alone - Kenya, Uganda, Tanzania and Rwanda - could still be losing around $1.5 billion and possibly up to $2 billion a year through the granting of corporate tax incentives to foreign companies. Uganda loses around US$370 million, Kenya around US$1.1 billion, and Rwanda up to US$176 million. This amounts to, total revenue losses that would amount to up to $2 billion a year.

The 2 billion a year figure (less than the 2.8 billion a year figure from our 2012 report) reflects a welcomed commitment by the EAC government's. Governments have taken some positive steps to reduce tax incentives, especially those related to VAT, which are increasing tax collections and providing vital extra revenues that could be spent on providing critical services. However, the figure is exceedingly estimated and may well be short of reality as accurate reliable data in most cases does not exist for all incentives given to foreign firms.

While welcome statements indicating commitments to revise tax incentives have been uttered by politicians of the region, many questions arise how eliminating tax incentives will be realised. It is unclear how these tax incentives will be revised, costed and phased out in practice and what resources and expertise are at the disposal of governments to carry out this work.

For Burundi, determining the revenue losses due to tax incentives was particularly challenging in this case owing to an almost complete lack of data. However, Burundi's President Pierre Nkurunziza, recently indicated that at least 81 billion Burundian Francs ($52 million) has been lost to companies or officials who have been given tax exemptions to import goods to build infrastructure and instead sold on the materials.

In Tanzania, revenue losses from tax incentives given in 2014/15 were likely to be around US$790 million; although this figure predates the new VAT law which is claimed will result in extra revenues of US$500 million.

Kenya, the amount of revenue lost through tax incentives is likely to be near the KShs100 billion (US$1.1 billion) a year level.

In Uganda, it remains unclear how much Uganda is losing to tax incentives since government figures do not appear to provide full figures, but the amount is likely be around US$370 million.

In Rwanda, estimates suggest that Rwanda is losing between Rwf 87 billion (US$115 million) and Rwf123 billion (US$176 million) a year.

ActionAid is a global movement of people working together to achieve greater human rights for all and defeat poverty. We believe people in poverty have the power within them to create change for themselves, their families and communities. ActionAid is a catalyst for that change.

Tax Justice Network-Africa (TJN-A) is a Pan-African initiative established in 2007 and a member of the Global Alliance for Tax Justice. It is a network of 29 members in 16 African countries. Through its Nairobi Secretariat, TJN-A collaborates closely with these member organisations in tax justice activities at the national, regional and global level. TJN-A seeks to promote socially just and progressive taxation systems in Africa, advocating for propoor tax policies and the strengthening of tax systems to promote domestic resource mobilisation. TJN-A aims to challenge harmful tax policies and practices that favour the wealthy and aggravate and perpetuate inequality.


Environmental crime now the world's fourth largest illicit enterprise, says new report

June 13, 2016

http://www.africaeconews.co.ke/ - Direct URL - http://tinyurl.com/jnjo59x

Environmental crime is now the world's fourth largest illicit enterprise after drug smuggling, counterfeiting and human trafficking.

According to a joint report by the UN Environment Programme (UNEP) and Interpol (see full report at
http://unep.org/documents/itw/environmental_crimes.pdf), it is estimated that the value of the black market industry behind crimes such as ivory smuggling, illegal logging and toxic waste dumping has jumped by 26 per cent from 2014 to between US$91 billion and US$258 billion annually depriving countries of future revenues and development opportunities.

"Environmental crime has impacts beyond those posed by regular criminality. It increases the fragility of an already brittle planet," observed Mr Achim Steiner, UN Under-Secretary General and Unep Executive Director.

Interpol Secretary General Jürgen Stock says an enhanced law enforcement can help address this worrying trend.

"There are significant examples worldwide of cross-sectoral efforts working to crack down on environmental crime and successfully restore wildlife, forests and ecosystems. Such collaboration, sharing and joining of efforts within and across borders, whether formal or informal, is our strongest weapon in fighting environmental crime," says Mr Stock.

Environmental crimes cover not only the illegal trade in wildlife, but also forestry and fishery crimes. It includes illegal dumping of waste including chemicals and use of ozone-depleting substances.

Destruction of natural flora and fauna, pollution, landscape degradation and radiation hazards, with negative impacts on arable land, crops and trees adds to the list.

The debate on environmental crimes also includes exploitation of natural resources such as minerals, oil, timber and marine resources.

In recent years, the joint report says, the debate has reached the global stage due to its serious and deleterious impact on the environment and ecosystems, as well as on peace, security and development.

Environmental Crimes makes simpler for Illicit Financial Outflows

Illegal exploitation of natural resources, including ITW, has negative consequence on potential revenues from tourism, timber, mining, gold, diamonds, fisheries and even oil and charcoal.

These natural resources could have produced revenue for development needs in health care, infrastructure, schools and sustainable business development.

Indeed, the illegal trade especially in natural resources like fish, timber and minerals undermine legal and sustainable businesses through unfair competition and non-payment of legitimate taxes for social benefits.

Currently, the scale of different forms of environmental crime is likely in the range of USD 91–259 billion or twice the size of global official development assistance (ODA).

This total amount of USD 91–259 billion is a loss to society because the commercial activity takes place as an illegitimate enterprise. It undermines governance, legal tax-influenced price levels, and particularly legitimate business. An unknown proportion will nonetheless be re-introduced into the legitimate economy through money laundering.

A research by Development Initiatives (DI) on foreign aid and stimulating domestic revenue mobilisation in Kenya and Uganda revealed that tax revenue makes up the largest proportion of total revenue, which is over 85 per cent for Kenya in the last three years (and over 80 per cent in Uganda). It also found that ODA to domestic revenue mobilisation in Kenya and Uganda amounted to close to US$ 21.5 million in 2014 (with more funding to Uganda than Kenya).

DI suggests in order for the country's efforts to mobilise domestic revenue to bear more fruit, there is need to develop approaches that increase tax revenue without necessarily increasing the tax burden. However, broadening the tax base to mobilise more domestic revenue might be undermined if attention is not given to leakages including illicit financial flows.

Meanwhile, the Panama Papers showed that illicit financial flows are not only an Africa problem, and that there is a need for global collaboration to track them.

"Countries such as Kenya and Uganda should target job-creating economic growth, and shift away from growth based solely on extractive industries – oil and gas – and services that require the employment of fewer people," says the joint report. About 10 per cent of the total amount is estimated loss of revenue to governments. The number is based on two assumptions: That the criminal activity generates an average profit of 30 per cent, and that government tax revenues could be 30 per cent of the profits, if the environmental crime activities had been legal and legitimate.

For an approximate comparison the average world total tax rate percentage of commercial profits was 40.8 in 2015 according to the World Bank. For the USD 91–259 billion range, with a profit of USD 27–78 billion, the tax income, which is loss for government revenue, would be 8–23 billion, or 8.8 per cent of the total amount, giving an average loss of government revenue of USD 9–26 billion.

The report points out an escalating species extinction due to wanton wildlife poaching and trafficking. Illegal logging and trade results in climate change emissions from deforestation and forest degradation.

The reports adds that illegal, unreported and unregulated fishing has resulted into fish stocks depletion, loss of revenues for local fishmongers and states. Most targeted fish species are Tuna, Toothfish and Sharks.

Criminals exploit the lack of international consensus and the divergence of approaches taken by countries. What may constitute a crime in one country, is not in another. This effectively enables criminals to go "forum shopping" and use one country to conduct poaching, and another to prepare merchandise, and export via a third transit country.

According to UNODC, corruption is the most important enabling factor behind illegal wildlife and timber trade. Identifying the optimal legal framework for preventing, combating and prosecuting environmental crimes requires careful consideration.

There are proposals, according to the UN report on environmental crime; firstly, designating any violation of wildlife or environmental laws and regulations to be designated as "serious crimes". Another proposal is to designate illicit trafficking in protected species of wild fauna and flora involving organised criminal groups" as serious crimes.

In as much as the UN Convention on Transnational Organised Crime (UNTOC) defines organised criminal groups, the new report recommends a broader applicability of the convention on new and emerging forms of crime.

In 2014, the Interpol General Assembly passed a Resolution on Interpol's response to emerging threats in Environmental Security (Resolution AG-2014-RES-03). In that resolution, instead of defining environmental crime, Interpol instead focused on "environmental security" by recognising the impact that environmental crime and violations can have on a nation's political stability, environmental quality, its natural resources, biodiversity, economy and human life.

Interpol also recognises that criminal networks engaged in financial crime, fraud, corruption, illicit trade and human trafficking are also engaged in or facilitating environmental crime.

Experts say the approach by both Interpol and the Commission on Crime Prevention and Criminal Justice (CCPCJ) in regarding environmental crimes more as a collective term, makes the criminalities fall under already established laws on serious crimes, including, but not limited to, serious financial and corporate crimes, forgery, fraud including tax fraud, terrorist finance. Such an approach provides prosecutors with far more powerful tools for prosecution and prevention and importantly – proportionality between offense, intent and punishment.

UN Security Council Resolution S/RES/2195 (2014), recognised that; natural resources are increasingly driving conflicts.

Three conventions control the international trade and movement of hazardous waste and dangerous chemical substances by setting procedures and standards for import and export. Both the environment and human health are exposed to hazardous waste and chemicals through the cycle these products go through from production, transport, use to disposal.

There are three interlinked conventions: the Basel Convention on the Control of Trans-boundary Movements of Hazardous Wastes and their Disposal, which primarily covers wastes trade; the Rotterdam Convention on the Prior Informed Consent Procedure for Certain Hazardous Chemicals and Pesticides in International Trade and The Stockholm Convention on Persistent Organic Pollutants which primarily covers chemicals, including restrictions on production.

The consensus based on Montreal Protocol of 1987, which controls ozone depleting gasses (ODS), has been ratified by 197 parties, making it universal. Projects worth USD 3.2 billion have been approved by its executive committee to phase out over 450,000 tonnes of substances with ozone depletion potential including the implementation of Project Sky Hole Patching by the Regional Intelligence Liaison Office of the World Customs Organisation in the 2000s. Unep, Unido, UNDP and the World Bank are the implementing agencies of the protocol.

Unep Governing Council's Decision 27/9 is the first internationallynegotiated document to establish the term "environmental rule of law".

The decision emphasised the role of organised criminal groups in trafficking hazardous waste, wildlife and illegal timber. The Council recognised that environmental crime undermines sustainable development, the successful implementation of environmental goals and objectives, the rule of law, and effective governance.

The council also noted that these issues have been recognised in UN General Assembly resolution A/RES/67/1 (2012) and A/RES/67/97 (2013) which urged member states to address transnational organised crime's impact on the environment.

United Nations Environment Assembly (UNEA) reaffirms the need to making illicit trafficking in protected species and forest products into a serious crime as defined by UNTOC.

World Environmental Law Congress in Rio in April 2016, where the Chief Justices, Heads of Jurisdictions, Attorneys Generals, Auditors General, Chief Prosecutors and other high-ranking representatives were gathered, agreed on a list of seven core principles to strengthen the environmental rule of law.

The congress passed recommendations not limited to linking environmental crimes to other crimes such as money laundering, and strengthening courts' capacity as guarantors of the environmental rule of law.


AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

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