The effectiveness of new international tax governance standards in the fight against illicit financial flows in WAEMU countries – Research

Computation of data published by the Global Financial Integrity (GFI) shows that the Economic Community of West African States (ECOWAS) consisting of 15 member countries lost some $268 billion to illicit financial flows (IFFs) within a 10 year period from 2004 to 2013.

The region with a population of about 335 million people, which is about one-third of the population of sub-Saharan Africa, has an estimated GDP of around $345 billion. The loss is therefore, approximately a colossal 78 per cent.

Nigeria suffers the biggest hit, with a loss of over $178 billion within that period.

The menace of illicit financial flows from Africa in general is a major source of leakage of much needed funds for development. With the continent losing an estimated $50 to $60 billion a year, the need to initiate a more purposeful effort at curbing the flows is more urgent than ever – more importantly, as the countries in the region are aiming at meeting the Sustainable Development Goals, while grappling with growing debts.

The summary of a PhD thesis by Raissatuo Joelle Traore, submitted to the University of Paris I Panthéon Sorbonne and copied to Ghana Business News, takes a look at the effectiveness of new international tax governance standards in the fight against illicit financial flows in the West Africa Economic and Monetary Union (WAEMU) countries.

There are eight countries in WAEMU. They are Benin, Burkina Faso, Cote d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo. All these countries once belonged to the ECOWAS, until recently when three countries, Burkina Faso, Mali and Niger pulled out to form the Alliance of Sahel States.

The thesis notes that most studies carried out on the WAEMU tend to focus either on its tax harmonization programme or on its financial or monetary system.

The author decided to focus her thesis on the WAEMU countries and the new international tax governance; spurred on by her keen interest and passion for the study of tax issues on the African continent.

“Another reason, and not the least, behind the choice of this topic is the desire to find mechanisms for considering the realities of African countries in the development of international tax standards,” she said.  

From a theoretical point of view, the thesis contributes to the legal and tax literature focused on the WAEMU space, while at the same time rekindling the debate on the participation of African countries in general, and those of the WAEMU in particular, in the development of the standards of the new international tax governance.

From a practical point of view, it highlights the advantages of implementing new international tax governance in the WAEMU region. It also demonstrates the usefulness of new international tax governance in the fight against the scourges of international taxation, notably illicit financial flows in WAEMU countries. 

It interrogated the effectiveness of new international tax governance standards in the fight against illicit financial flows in WAEMU countries, and how to maximize tax revenue mobilization.

For instance, it has been noted that tax revenue mobilization is hampered by illicit financial flows such as tax fraud and evasion in developing countries in general, and in WAEMU countries in particular.

The author then argues that to mitigate these losses, these countries have no choice but to join the efforts of the world’s states in the fight against these scourges which undermine the international tax system.

To this end, WAEMU countries have signed multilateral tax treaties, in the drafting of which they were not involved from the outset.

The work further notes that for WAEMU countries, whose priority remains the quest for economic development, the new international fiscal governance is only useful when it promotes the efficient mobilization of tax revenues within the Union. The best way to help developing countries avoid the immoderate exploitation of their natural resources is to substitute tax revenues for the proceeds from their exploitation, it added.

According to the research, the new tax governance refers in particular to the consideration of new international tax issues in the development of international tax rules, such as the digitization of the economy, the distribution of the right to tax between tax jurisdictions, the institution of a global minimum tax, the need for international cooperation in tax matters to effectively combat tax evasion and avoidance, the erosion of the tax base and profit shifting, harmful tax practices, and the abuse of tax treaties.

Explaining, it said the material scope of the new international tax governance therefore includes international tax rules adopted under the aegis of the Organization for Economic Co-operation and Development (OECD). These international instruments are considered to constitute the new international tax governance because of their scope and content.

After studying the advent and adoption of the new tax governance in WAEMU countries, and examining how it was understood and won over in the Union, the second part of the thesis focused on the implementation of the new international tax governance in member states. As it turns out, the member states have demonstrated a certain political will by taking steps to promote implementation.

However, WAEMU does not support member states in this dynamic, because the organisation believes that its mandate does not extend that far and that the implementation of the new international fiscal governance is a matter for the member countries themselves and not for the Union. For a long time, therefore, it has refrained from taking any initiative to promote implementation.

While the research acknowledges that the implementation of the new international tax governance in WAEMU countries is not yet full and complete, it states that it is true that these countries are making some great efforts, however, there are still several factors standing in the way.

“These include the lack of political will on the part of the Union’s bodies, which do not see it as a priority, even though it has the potential to generate tax revenues for member states,” it said.

According to the author, the prospects for the implementation of the new international tax governance essentially concerns greater involvement by WAEMU countries.

“They must adopt community standards that promote this implementation, which has the potential to intensify the fight against illicit financial flows in the sub-region, and in turn, boost the efficient mobilization of tax revenues,” the author said.

By Emmanuel K Dogbevi

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