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February 26, 2018

Kenya losing Sh40 billion in illicit financial flows

A company list showing the Mossack Fonseca law fi rm is pictured on a sign at the Arango Orillac Building in Panama City April 3, 2016 / REUTERS
A company list showing the Mossack Fonseca law fi rm is pictured on a sign at the Arango Orillac Building in Panama City April 3, 2016 / REUTERS

Kenya has been losing an average of Sh40 billion every year through illicit financial flows since 2011 as both government, local firms and multinationals engage in fraudulent schemes to avoid tax payments.

Combined, this is an increase from Sh160 billion recorded in five years to 2011, an indication that illicit trade is gaining momentum in the country at the time the state is struggling to meet its revenue targets revised to Sh1.64 trillion.

Kenya missed its revenue targets last year by Sh54.8 billion and is likely to miss by a wider margin this financial year. Actual receipts for the period between July 1 and 31st August 2017 hit Sh251 billion, down from Sh291.8 billion recorded over a similar period last year.

Speaking during the 5th Pan African Conference on illicit financial flows in Nairobi, Aida Opoku Mensah, senior advisor on SDG at Economic Commission for Africa (ECA) said that Africa is losing at least $50 billion (Sh5 trillion) to this vice.

Africa for instance lost $511 billion in domestic revenues between 2000-2010, an amount higher than $317 and $316 billion it received in foreign direct investment and official development aid respectively.

“These lower-end figures indicated to us that in reality Africa is a net creditor to the world rather than a net debtor, as is often assumed. If stopped, tracked and reinvested, the continent can progress towards reducing poverty by up to 2.5 per cent faster than the current speed,’’ said Aida.

Trade mis-pricing, payments between parent companies and their subsidiaries, and profit-shifting mechanisms designed to hide revenues are some of the common avenues used to eat into the continent’s domestic resource mobilization.

According to Tax Justice Network Africa, poor governance, weak regulatory structures and involvement in corruption by top government officials remains a challenge in the fight against the illicit practice.

Minerals rich countries like Nigeria, South Africa, Zambia and Congo are more vulnerable to illicit financial flows due to poor policies governing mines.

In May last year, 18 prominent Africans were implicated in a tax evasion scam that detailed how a Switzerland law firm Mossack Fonseca helped them to make use of tax haven.

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