An exchange-of-information mechanism is helping African countries improve tax collection and combat illicit money flows. Four countries used the mechanism to add over US$70 million in taxes in 2022.
Lucy Githugo, bird story agency
An Exchange of Information on Request (EOIR) mechanism helped Kenya, South Africa, Tunisia, and Uganda identify an additional €66 million (US$74M) in taxes, according to the 2023 Tax Transparency in Africa progress report.
This represents a 77% increase from the €37.2 million reported in 2021.
Exchange Of Information on Request, a tool for tax evasion, occurs when the tax authority of a requesting country asks for particular information from the competent authority of a country deemed to have the information.
"Although a lot of progress is still needed, we can already see that exchange of information is one of the solutions to address issues of illicit financial flows in Africa and an effective tool to increase domestic resources on the continent," said AU Commissioner for Economic Development, Trade, Tourism, Industry, and Minerals, Albert Muchanga.
The report, jointly published by the African Union Commission, the African Tax Administration Forum, and the Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum) on July 6, highlights the progress made by 38 African countries in combatting tax evasion and illegal financial flows through increased transparency and information exchange.
"More African countries are joining global efforts to combat tax evasion through tax transparency. They are also making use of the infrastructures to help the resolution of tax audits/investigations with a cross-border element and to detect and deter cross-border tax evasion," the report notes.
In 2022, The Republic of the Congo, Angola, Zimbabwe and Sierra Leone joined the Global Forum, while Tunisia, Kenya, Morocco, Rwanda, and Uganda committed to undertaking their first automatic exchange of financial account information by specific dates.
As of December 2022, 76% of countries had established exchange of information (EOI) units. Additionally, 62% had documented formal procedures for handling EOI requests, and 57% had implemented tracking systems to monitor EOI requests and enhance the effectiveness of the EOI function.
"A total of 531 EOI requests were made in 2022, a decline from the 592 requests sent in 2021. However, while the number of requests sent dropped, the number of incoming EOI requests rose to 683 in 2022, from 628 in 2021," the report notes.
While the number of EOI requests made slightly decreased, African countries making requests rose to 19 in 2022 from 15 in 2021.
However, four countries (Kenya, Nigeria, South Africa and Tunisia) accounted for 86% of all requests sent in 2022. Of these four, Kenya (28%) and Tunisia (47%) accounted for over 75% of all requests sent.
In contrast, there were 683 incoming EOI requests in 2022, a 9% increase from 2021. A total of 19 African countries received EOI requests, with eight countries (Algeria, Kenya, Mauritius, Morocco, Senegal, Seychelles, South Africa and Tunisia) accounting for 90% of all incoming requests.
While this report demonstrates African countries' progress in using tax transparency and EOI, it remains uneven.
"A significant number of African countries are not yet effectively using available EOI infrastructures to enhance their efforts for domestic resource mobilisation. This calls for African tax authorities to establish a culture of EOI and ensure that it becomes a tool to promote tax compliance," reads part of the report.
This report seeks to inform decision-makers and citizens on the continent's latest progress and remaining challenges in matters of transparency and exchange of information for tax purposes.
As of 2022, African countries have collectively reported collecting over EUR 310 million (US$348 million)as a direct result of the exchange of information on request since 2014, and at least EUR 1.69 billion (US$1.9B) in additional revenues (tax, interest and penalties) have been identified in the region since 2009, through voluntary disclosure programmes launched before the first automatic exchanges, EOI and offshore investigations.
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