Financial Transparency Coalition

The Deputy President of South Africa, Cyril Ramaphosa, has issued some strong words against individuals and corporations funneling money out of the country to avoid taxes. Speaking at the National Council on Provinces, Ramaphosa called on citizens to report cases of tax evasion.

Deputy President Ramaphosa noted the importance of tackling illicit flows and tax evasion. An article in the South African outlet, iOLNews, highlights his remarks:

Ramaphosa said the issue of tax evasion “clearly is a very important one” in South Africa. “It should be important for all citizens in South Africa. Tax evasion and the illegal transfer of capital across borders are dealt with by relevant authorities in our country.”

Calling it a crime against both the state and its people, Ramaphosa asked citizens to report those who may be guilty of tax evasion.

“I think we are on record as government that tax evasion is not only a crime against the state it’s also a crime against the people of our country, ordinary people. It is a practice we would like to discourage; to root out of our body politic so that people do not avoid paying tax. And to the extent that anyone, be it an individual or a company, should be pursued.

“If anyone of us knows people or companies that are evading taxes, that should be reported to the authorities and they should take action,” said Ramaphosa.

He continued by highlighting profit shifting, which is when a corporation uses loopholes and inconsistencies within different financial jurisdictions to artificially move profits from one place to another. Often, profits are routed to a low-tax jurisdiction, so that the amount of tax owed is significantly lower.

He said the most significant form of tax evasion was often done through so-called base erosion profit shifting.

“(This) describes tax-planning strategies that rely on mismatches and gaps that exist between tax rules and different jurisdictions. These strategies are designed to minimise the corporation tax that is payable, either making tax profits to disappear or shifting profits,” said Ramaphosa.

He added that in most cases, the various strategies were not illegal.

“This essentially is a global problem,” said Ramaphosa.

But even with a focus on curbing them, illicit financial flows remain to be a huge problem in South Africa; more than $US100 billion has left the country illicitly between 2002 and 2011, according to FTC member Global Financial Integrity. In 2011, for example, illicit financial flows equated to roughly 6% of the country’s total Gross Domestic Product (GDP).

Here’s a look at illicit financial flows in South Africa by year:

Image used under Creative Commons license / Flickr User Chris Eason