Utilising information from tax transparency report will require legislative change

Improving tax transparency in Africa has been making headway since the Africa Initiative was established in 2014 by the African members of the Global Forum on Transparency and Exchange of Information for tax purposes.

The Tax Transparency in Africa 2023 report, which includes contributions from 38 African countries, was launched at the 13th meeting of the Africa Initiative in Cape Town on 6 July.

The goal of introducing tax transparency and exchange of tax information (EOI) is to equip African countries with the tools to tackle tax evasion and stem illicit financial flows (IFFs).

ALSO READ: Fill in your tax return, it’s the right thing to do

According to the report, “five African countries were able to identify additional revenues totalling €76.6 million (about R1.5 billion in 2022…” Of this amount, €10.6 million came from financial account information, and the report concludes that this comes from IFFs.

“Although a lot of progress is still needed, we can already see that EOI is one of the solutions to address IFFs in Africa…”

EOI comprises information held by banks and financial institutions and information regarding the ownership of companies, partnerships, trusts and foundations. The report explains that IFFs include money laundering, bribery and tax evasion, and that “due to the secret nature of IFFs and the absence of a universally accepted definition, it is extremely difficult to accurately track them…”.

The Citizen asked the SA Revenue Service (Sars) to explain how EOI enabled Sars to identify IFFs and to disclose the amount of IFFs identified over the past five years. Sars was also asked to disclose the amount of tax evasion that was identified and collected over the last five years, and it has not responded.

To utilise information received from other jurisdictions, the receiving country must have the skills and capacity to perform an in-depth audit and have the requisite effective legislation in place. Hence, the Africa Initiative also provides a central platform to arrange for training and the transfer of skills.

ALSO READ: Tax season starts on 7 July: Here’s what you need to know

In 2022, “33 Africa countries received technical assistance on various topics, including improving the beneficial ownership frameworks, broadening the EOI networks, improving the organisation of the tax administrations and setting up of functioning EOI units, strengthening the legal and operational framework for AEOI and pre-membership support”.

The report notes: “Transparency has emerged as one of the effective tools for combating IFFs. For example, since transparency removes the veil of secrecy, it renders the use of legal persons and/or arrangements in transactions facilitating IFFs less attractive by enabling the identification of the legal and beneficial owners of legal entities or arrangements.

“Transparency also provides for access to banking information and accounting records, which is also fundamental to identify the origin and destination of the flows.”

Improving beneficial ownership frameworks requires legislative changes. For example, to comply with the Financial Action Task Force requirements, Sars has only recently started recording all beneficial owners of newly registered trusts in SA. But this doesn’t apply to the hundreds of thousands of trusts that have been established over the years.

Sars did not respond to the question on the lack of beneficial ownership information regarding established trusts.

ALSO READ: Taxing times: New SARS rules for resolving tax disputes

Sars was also asked to provide information on the number of EOI requests sent, and received, in 2022, and whether Sars has a specific unit that deals with and tracks the audits undertaken arising from exchange of information. Sars has not responded.

At the meeting, Sudhamo Lal, director-general, Mauritius Revenue Authority, said: “This project gives us the information; information is power… How we use the information will be a great challenge… We must have the legislative and administrative powers to use the information.”

He also cautioned that “the revenue space evolves all the time, when you bring in new tools, you need even better ones”.

-Curson is a chartered accountant with qualifications in tax law and international tax law