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Dr. Grant Kabango, the deputy Governor Reserve Bank of Malawi has revealed that a number of multinational companies are being probed for allegedly externalizing agricultural products by failing to declare the accurate sale of prices.
The deputy governor noted that these companies are covering the value of foreign currency expected to be received by the country.
“By extension, the rest of the funds are being retained outside the country, this is defrauding the country of its exports proceeds,” Kabangi said.
He was speaking at a Financial services conference recently where legal issues affecting the financial sector were discussed at length.
He further disclosed that there is a possibility that billions of money could be involved in the unlawful venture and mentioned that investigations are underway adding that he could not mention the companies involved yet.
“The country loses out in terms of tax collection and one of the papers at this conference intends to survey and asses the adequacy of the transfer pricing regulation regime in Malawi from a taxation perspective.”
Kabango did mention that RBM in a collaboration with Financial Intelligence Agency FIA is already investigating and indicting some cases of the illegal foreign exchange externalisation.
Externalisation is how a business maximizes its profits by off-loading indirect costs and forcing negative effects to a third party.
“The bank has successfully and conclusively prosecuted several cases of illegal currency externalisation, amounting an equivalent of about USD 815 Mn.”
He noted that the regulatory structure is weak and that the bank has drafted a Foreign Exchange Bill to replace the Exchange Control Act.
Africa was swindled out of USD 11 Bn in 2010 through tricks used by multinational companies to reduce tax bills, according to an Oxfam report.
Trade mispricing, corporate tax avoidance are some of the reasons Africa loses billions of potential revenue from multinational companies.
These international corporations often take advantage of the loopholes in the international tax system that allow them to lessen corporate tax contributions by making taxable profits ‘disappear’ on paper.
Economic think tanks and report authors have severally called on business and political leaders to push for reforms in the global tax rules to prevent multinational companies from dodging taxes and to ensure the continent benefits from the vital tax.
Featured Image Courtesy: Shutter Stock
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