African nations are leading the charge for a United Nations (UN) convention on tax cooperation, aiming to overhaul the current international tax system.
The proposed framework seeks to address the staggering losses Africa faces due to tax avoidance and illicit financial flows, estimated at US$90 billion annually by the African Union (AU). This initiative could revolutionize global tax governance and provide much-needed resources for the continent’s development.
The push for this UN tax convention comes as African countries struggle with multiple crises, including climate change, food insecurity, and mounting debt.
A policy adviser to the Nigerian-led group, Patrick Olomo, highlighted at recent IMF/World Bank meetings that the combined losses from illicit financial flows and tax breaks for the wealthy amount to a whopping US$390 billion per year. This figure accentuates the urgent need for reform in international tax rules.
Africa’s diverse economic landscape, ranging from low-income to high-income nations, faces common challenges in mobilizing domestic resources.
Recent examples illustrate the severity of the situation. Angola’s finance minister revealed that tax revenue barely covers salaries and debt servicing, while Nigeria loses an average of US$18 billion annually to illicit financial flows. South Africa reportedly lost US$20 billion yearly between 2009 and 2018 due to tax avoidance and evasion by the super-rich.
The continent’s wealth disparity is stark, with 135,200 millionaires, 342 cent-millionaires, and 21 billionaires controlling a combined investable wealth of US$2.5 trillion, according to the Henly & Partners 2024 Africa Wealth Report.
This concentration of wealth, often hidden through complex legal arrangements and offshore assets, exacerbates the challenge of fair taxation and equitable development.
The proposed UN Framework Convention on International Tax Cooperation represents a significant shift from previous OECD-led efforts, which have been criticized for failing to adequately address the needs of developing countries.
This new initiative aims to create a more inclusive and effective system for taxing multinational corporations and high-net-worth individuals, potentially closing loopholes that have long facilitated tax evasion and avoidance.
