AEOI - African countries which are making it work

Numerous fiscal problems of African countries can be resolved through a specific and high-end exchange of information. This is where the OECD's Africa Initiative steps in - it specifically promotes the exchange of information within African countries and it understands the unique challenges they have while trying to find ways to overcome them.

It's no secret that the exchange of information helps eliminate the abuse of the tax system. The implementation of EOIR and AEOI in many countries around the world showed us that taxpayers can be encouraged to voluntarily disclose their formerly concealed wealth. According to the OECD, the world has attained around 102 billion euros of additional revenue through voluntary disclosure programmes. If this amount of money was mobilized even before the formal implementation of EOI, consider what can happen when it becomes a vital part of tax legislation.

This can especially make wonders for developing countries such as those in Africa. But African countries have a problem with several different elements of the tax system that together represent a serious challenge. It's considered that around 44 percent of Africa's wealth is being held offshore which accumulates into 17 billion euro loss in tax revenue. They also have a substantial issue with illicit financial flows which have a negative impact on the development of those countries. According to the HLP Report, African countries are losing between 50 and 80 billion dollars annually on illicit flows. All this, combined with an extremely low tax to GDP ratio puts those countries in a very difficult situation.

Having these issues in mind, it is very reassuring to see that the interest, the will, and the infrastructure regarding the exchange of information is improving. The Africa Initiative's report for 2019 has shown us that more and more African countries are looking to improve tax transparency. Exchange of information continues to be a priority, the EOI infrastructure is improving, African countries are broadening their EOI networks and continuing to implement EOIR standard while commencing the implementation of AEOI standard.

IMAGE: Evolution of the EOI infrastructure and the EOI staff within tax administrations in Africa. Source: Tax Transparency in Africa 2020 - Africa Initiative Progress Report: 2019

When a country decides to fight tax evasion through the Africa Initiative, it actually goes through four steps that bring them ultimately to effective use of EOI in tackling illicit financial flows. The first step is membership. During this step, countries are required to make a political commitment to implement EOI standards and undergo peer review. The second step is the induction program which lasts for several years and it implies technical assistance in implementing EOI standards. The third and fourth step is all about implementation. First, the implementation of EOIR standard (exchange of information on request) and then AEOI standard (automatic exchange of information).

Although the interest in AEOI is progressing, only four African countries have made significant steps to show serious dedication to this process - South Africa, Mauritius, Seychelles, and Ghana. Nigeria is about to make a substantial step in 2020 and Morocco in 2021.

The low number of dedicated countries isn't strange, actually. AEOI is a serious investment. A cost-effective one, but still very expensive. Given the fact that African countries have a low domestic resource mobilization, it's hard for them to find the resources needed for the shift to AEOI.

As mentioned earlier, only four countries have made serious steps regarding the implementation of AEOI. But it truly is encouraging to see that others are trying, showing interest and are dedicated to certain programmes or pilot projects with an economically and fiscally stronger partners.

Nigeria is expected to make significant steps towards AEOI in 2020. Considering it's the largest African economy, it's expected that the impact of the exchange of information on increasing tax revenue will be huge. Actually, the impact has already been proved through the voluntary disclosure program. It lasted for 15 months and through it Nigeria had gained 82 million dollars of revenue, plus, their taxpayer database grew from 14 million in 2016 to 19 million in 2018.

And this is the current situation in Nigeria - the EOI structure is in place and in the first round of review, the EOIR standard was found largely compliant. Nigeria is in the leading position as a ‘First Mover’ in Africa for international tax exchange initiatives. Technology has been playing a big part of sophisticating the reporting and ensuring compliance, with Vizor AEOI Solutions playing a pivotal role and partnering with The Federal Inland Revenue Service (FIRS) of Nigeria. In September 2020, they have fully implemented it’s AEOI platform to manage its Automatic Exchange of Information (AEOI) commitments set out under the OECD Common Reporting Standard (CRS), with CRS report filling by Financial Institutions in Nigeria started on 1st of September.

‘’We selected Vizor AEOI due to their expertise not just in the area of IT but also in international taxation obligations as well as their prior experience of working with African government authorities.’’, commented Femi Edgal from the FIRS. “Despite the obvious challenges posed by the pandemic and the new World we now operating in, thanks to the excellent cooperation on both sides, we are delighted to see the project reach Go-Live.’’

This momentous project with Nigeria has been another Vizor AEOI project delivered 100% remotely (the first being Oman), clearly embracing the new environment in which we are all operating.

The induction program in Egypt was launched in 2017 and by now, most of the elements of EOI infrastructure are in place. Drafting of the EOI manual is progressing, and the EOI network is in place, although it's not fully compliant with international standards. But what's encouraging is the fact that the implementation of AEOI in Egypt is considered in the context of a pilot project with the UK.

In Morocco, similar to Egypt, the EOI infrastructure is in place and the EOI strategy is progressing. The EOIR is considered to be largely compliant in the first round of reviews and there is an AEOI pilot project with France due in 2021.

In 2020, 5 African countries will be exchanging AEOI data, with Nigeria joining Ghana, Mauritius, Seychelles and South Africa. This number is meagre yet the potential benefits of AEOI are huge. Engagements with more African countries to actively participate in the tax transparency agenda will continue to be the main priority of the Global Forum on Transparency and Exchange of Information for Tax Purposes.

In addition, the African Union is committed to playing a leadership role in the implementation of the Africa Initiative on tax transparency and keeping the discussions at the high political level to ensure that all Member States join the Initiative. Only joint effort can ensure the success of the Initiative and bring prosperity to African Tax Administrations.