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Firms hiding behind Covid in transfer pricing—report

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Steven Kapoloma

Some multinational companies are taking advantage of the Covid pandemic to under-declare or shift profits to their havens, a study by local researcher and economist Donasius Pathera has shown.

A draft report of the study, that we have seen, indicates that Malawi and 29 other African countries are going to lose about $325 billion in corporate profits shifted to tax havens outside the continent from the $290 billion that is considered to have been lost in 2020.

This represents a 12 percent increase in money lost among African countries to the vice.

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The report further says, in terms of tax, these 30 African countries are going to lose approximately $110 billion in tax revenue an increase loss from the $80 billion estimated to have been lost last year.

The results further show that Rwanda is highly respected by investors in terms of business investment and is highly preferred by honest multinational companies whereas Nigeria is the biggest loser of revenue from transfer pricing by multinational companies.

Gambia and Mauritius are the new countries with high vulnerability to transfer pricing in 2021.

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According to Pathera, the development will translate to social services in such countries being funded by lower income taxpayers, leading to an increase in inequality.

“Much time is being wasted on feeling sorry for companies for making losses, while some are stealing revenue from Africa. I found that lower-income countries on average lose at least as much as developed countries at the same time, they are less able to implement effective tools to reduce the amount of profit shifted out of their countries,” Pathera said.

He suggests switching to a unitary model of taxation where tax is on the profit at the point where economic activity which generates it actually takes place and not where profits are reported.

Last year, the Malawi Revenue Authority (MRA) indicated that it was pursuing transfer pricing cases amounting to over K50 billion at the Revenue Court.

MRA Head of Corporate Affairs Steve Kapoloma said it is not known as to when the cases will be concluded as they are on different stages at the court.

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