ARINSA news postings



by Kudzai Chinoda -
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09/03/2020 02:46:00 BY ASHMOND NZIMA

MBABANE – The Eswatini trade ‘misinvoicing’ gap averaged E4.2 billion (US$268.4 million) from 2008 to 2017 (10 years), according to a report by Global Financial Integrity (GFI).

The report titled ‘Trade-related illicit financial flows in 135 developing countries 2008-2017’ was released on March 4, 2020 (last Wednesday).

It focuses on trade-related misinvoicing, one of the largest components of illicit financial flows (IFFs) among the 135 developing countries and 36 advanced economies. Trade misinvoicing refers to one party (the importer or exporter) deliberately falsifying the price, quantity or quality of goods being imported or exported, and in this way, illicitly transferring the difference, which may involve money laundering, customs duty evasion, and tax evasion.

Export under-invoicing can also be used to shift money abroad, evade income taxes and export taxes. Illicit financial flows pertain to illicit activity, and do not include tax avoidance. ‘Trade-related’ illicit financial flows may include the illegal drug trade, illicit arms deals, and the laundering of dirty money.

The report found that on average, over 10 years, the average rate of trade misinvoicing for the country as a percent of total trade with all its global trading partners was 21.9 per cent.

“This is the value that has been illicitly moved through Eswatini’s trade, and as a result, has not been properly taxed by the respective authorities,” reads the report in part.

Meanwhile, the countries included in the report are based on the International Monetary Fund (IMF) classification system, which is comprised of 148 developing countries and 36 advanced economies. However, 13 of the developing countries did not report sufficient trade data to the United Nations to be included in the analysis.


“In order to identify a country’s imports/exports that may have been misinvoiced, Global Financial Integrity (GFI) conducts a value gap analysis by examining data submitted by governments each year to the United Nations Comtrade database and applying a series of filters to ensure unmatched trades are omitted. GFI then uses a partner-country analysis to compare and contrast the differences between any set of two countries in order to identify value gaps, or mismatches, in the reported data,” reads the report.

The report demonstrates that trade misinvoicing continues to be a major drain on domestic tax bases in developing countries, undermining efforts to mobilise domestic resources to meet the UN 2030 Sustainable Development Goals (SDGs) and other long-term national development initiatives.


“While the estimates of trade misinvoicing may not be exact, the numbers illustrate the orders of magnitude of the problem, which clearly underscores the reality that this phenomenon is a major global problem. The data indicates that trade misinvoicing has been a persistent challenge across most countries over the 10-year period examined.”

The data also shows the problem is universal in nature – there are large degrees of trade misinvoicing between both advanced and developing economies.
“It is important to note, however, that trade misinvoicing has a far greater negative impact on the finances of developing economies.

“In other words, trade misinvoicing constitutes one the world’s most serious global challenges for successfully achieving the SDGs across developing countries,” highlighted the report.

Developing and advanced economy governments alike, according to the report, both have a responsibility to curtail trade misinvoicing in particular, and illicit financial flows in general, as these practices undermine the economic and national security of all nations, not just developing ones.

No immediate comment could be sourced from Eswatini Revenue Authority (SRA) Director Communications Vusie Dlamini as he was reported out of office when a questionnaire was sent on Friday.
A local economic expert has concurred with the report that the estimated potential lost tax revenue from trade misinvoicing can approach billions of dollars per year for developing countries – depriving them of desperately needed financial resources that could otherwise have been directed at scaling up public investment for national economic development and poverty reduction.
Meanwhile, through the same challenge, according to the report; neighbouring South Africa is losing R300 billion annually. The average size of the value gap between sub-Saharan Africa and the 36 advanced economies is US$27.2 billion (about E426.3 billion).

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