The Battle Against Tax Evasion: How a UN Tax Convention Can Ensure Fair Contributions from All

By Léonce Ndikumana

Massachusetts, [SHIFTMEDIA] The global battle against tax evasion is reaching a critical juncture. This month, the United Nations is poised to approve a groundbreaking tax cooperation convention that could significantly reshape international financial systems and ensure that all countries, particularly in Africa, can raise the funds they need for essential services and development.

Africa loses an alarming amount of money to tax avoidance—billions of dollars annually that could otherwise be used to address the continent’s urgent needs, such as climate change, infrastructure, and public services like education and healthcare. The African Union estimates that Africa loses $90 billion a year due to illicit financial flows. Additionally, tax breaks that favor the super-rich cost the continent another $220 billion yearly. Combined, these losses add up to an eye-watering $390 billion per year. This money is vital for funding Africa’s development and tackling the simultaneous crises of food insecurity, climate change, and economic instability.

Countries across Africa face a dire situation. Many are struggling with high levels of debt, and some, like Angola and Nigeria, have seen their tax revenues drained by illicit financial flows and tax evasion. In Angola, for instance, the government’s tax revenues are barely enough to pay public sector salaries and service debt. Similarly, Nigeria loses an average of $18 billion a year to financial illicit activities, and South Africa faces a staggering $20 billion annual loss due to the tax avoidance practices of the wealthy.

Despite these challenges, there is a solution: improving the fiscal space of African nations through fair taxation. Multinational corporations, cross-border services, and the wealthiest individuals in Africa are under-taxed, with many exploiting legal loopholes to avoid paying their fair share. A small group of ultra-wealthy individuals are able to amass vast fortunes, often hiding their wealth in offshore tax havens. The Henley & Partners 2024 Africa Wealth Report reveals that Africa is home to over 135,000 millionaires, with a combined investable wealth of $2.5 trillion, most of it sheltered from local taxation.

The concentration of wealth in the hands of a few is not unique to Africa. Global financial scandals over the past decade have prompted some action by the Organization for Economic Cooperation and Development (OECD) to address tax avoidance, but efforts have been largely ineffective. Emerging economies, particularly in Africa, are frustrated by the failure of the OECD’s “Inclusive Framework,” which promised to reform global tax rules but ultimately left many countries disappointed.

The time has come for a more equitable solution: the proposed United Nations Framework Convention on International Tax Cooperation. This initiative seeks to address the systemic issues of tax evasion, capital flight, and the under-taxation of multinationals and the wealthy. The UN convention has garnered support from many developing countries, including African nations, which are dissatisfied with the limited progress made by the G20 and OECD.

 

A significant breakthrough occurred this year when G20 finance ministers agreed to collaborate on ensuring that the super-rich are taxed more fairly. The UK and France, both traditionally resistant to higher taxes on the wealthy, also acknowledged the issue and committed to reforming their tax policies. These moves signal a growing recognition that fair taxation is crucial for global economic stability and development.

For African countries, international tax cooperation is essential. Without it, they cannot effectively tax multinational corporations or wealthy individuals who can easily relocate their wealth to avoid taxes. A global framework that addresses tax evasion and avoidance could help stem the flow of illicit financial outflows, strengthening the economies of African nations and supporting their efforts to fight poverty, promote sustainable development, and adapt to climate change.

The UN tax convention represents a historic opportunity to correct global tax injustices. It promises to build on the modest progress made by the OECD and offer a more comprehensive and inclusive framework for taxing the wealthiest individuals and corporations. If successful, this initiative could not only help Africa retain much-needed resources but also contribute to a fairer, more sustainable global economy.

Léonce Ndikumana is a distinguished professor of economics and director of the African Development Policy Programme at the University of Massachusetts Amherst. He has extensive experience working on international tax and development policy and is a member of the Independent Commission for the Reform of International Corporate Taxation (ICRICT).

Léonce Ndikumana is a distinguished professor of economics and director of the African Development Policy Programme at the University of Massachusetts Amherst