Title: South Africa’s Battle Against Record-Breaking Illicit Financial Flows: A Developing Country’s Struggle
IFFs: The Hidden Threat to Developing Economies
- IFFs, or illicit financial flows, involve cross-border movements that are illegal in their origin, transfer, or use.
- IFFs have emerged as a major hurdle for developing and emerging economies.
- They undermine countries’ efforts to mobilize domestic resources, shrinking the public revenues required for investments in socio-economic development.
South Africa’s Challenge with IFFs
According to a joint report by the Organisation for Economic Co-operation and Development (OECD) and South Africa’s National Treasury:
- Approximately USD 3.5-5 billion leaves South Africa annually, accounting for roughly 1-1.5% of the country’s GDP.
- Undeclared South African assets held in International Financial Centres (IFCs) totaled between USD 40 and 54 billion in 2018.
The Significance of Addressing IFFs in South Africa
- South Africa faces significant socio-economic challenges, including low growth, rising debt levels, and high poverty and unemployment.
- To achieve the Sustainable Development Goals by 2030, a mobilization of domestic resources to finance public expenditures will be essential.
The Elusive Nature of IFFs: A Measuring Conundrum
- Prior studies focusing on errors and omissions in global macroeconomic statistics may overestimate IFFs, introducing biased results.
- This study uses a fresh approach based on CRS data, a new, country-specific, and more granular data source.
Progress Towards Tackling IFFs: Collaboration and Improved Capacities
Developing Improved Analytical Capacities
- Improvement of analytical capacities in tax authorities to make better use of CRS and tax data is essential.
Enhanced Collaboration and Data Sharing
- Enhanced collaboration and data sharing among relevant authorities are necessary.
Increased Utilization of Existing Treaties
- Increased utilization of existing treaties for information exchange with IFCs should be a priority.
OECD’s Role in Assisting South Africa
- The OECD can help countries like South Africa in their fight against IFFs by providing similar analytical studies.
- Capacity-building initiatives like Tax Inspectors Without Borders.
- The implementation of OECD’s Fighting Tax Crime framework.