By KT Reporter
Uganda’s East African Legislative Assembly representative George Odongo is pushing for a law that makes illicit financial flows a legal rather than moral issue.
Illicit Financial Flows or IFFs refers to money that is illegitimately earned, transferred, or used and, usually, crosses borders.
This may include funds from sources like corruption and criminal activity, tax evasion and avoidance, hence draining resources and undermining institutions.
IFFs arising from tax avoidance and unfair trade and investment contracts between developing countries and rich multinationals, tax havens, among others, can hardly be tackled by laws as they are actually supported by legal regimes.
Now, MP Odongo says a significant portion of potential revenue is lost due to a large informal sector and illicit financial flows.
He says that strengthening domestic laws and closing loopholes is essential to formalize activities and capture resources, while laws should be put in place to define IFFs and make it a legal and not a moral issue, so that culprits can be subjected to legal action.
According to Odongo, Domestic Revenue Mobilization (DRM) is no longer peripheral, but a core issue of managing nations, hence, strengthening the state’s role, ensuring financial capacity, and integrating DRM into policy priorities are essential for sustainable development.
His advice on effective mobilisation of resources is that Africa must reimagine institutions, adopt new governance “software,” and create sustainable, inclusive financing mechanisms that reduce dependency and vulnerability.
“Foreign aid is increasingly a geopolitical tool, making domestic resource mobilization a matter of both financing and geopolitical competence. Building internal capacities thus protects Africa from externally imposed interests,” he says.
One of the main challenges to mobilising resources is the fragmented investment policies across the EAC countries, which undermine revenue generation, yet, harmonising laws and creating free investment zones would attract investment without compromising domestic resources, according to experts.
Unfortunately, he says that there are people who have personal interests and the power to influence policy for their own benefits, which ends up denying the country growth opportunities.
In Uganda and EAC, IFFs also arise from tax policies which allow some companies to take their profits out of the country without paying taxes, for example tax exemptions and holidays.
The tax incentives regimes in Africa have been taken advantage of by, for example, companies giving wrong information about their operations, and others reregister their businesses under different names when their holiday is ending, and get fresh tax incentives.
Other ways include hiding of wealth by high net worth individuals so as to declare less incomes and pay less taxes.
Dorothy Nakyambadde, a researcher with Uganda Revenue Authority, says tax foregone in Uganda goes up to one third of the annual revenues collected, further affecting domestic revenue mobilisation the efforts.
She emphasized the need for partner states to review tax laws and administration collectively to stop revenue loss, adding that tax expenditures through rate adjustments, exemptions, and base reductions continue to erode revenue across the region.
Unfortunately, she says, EAC countries report tax expenditures differently, making harmonisation difficult.
This was at a regional dialogue on domestic resource mobilisation in the EAC organised by SEATINI Uganda, under the theme: Enhancing Domestic Resource Mobilisation through a Reformed Global Financial Architecture and Prudent Fiscal and Debt Policy Management.
At the dialogue which was also aimed sharing ideas with the Southern African Development Community (SADC), Kenneth Natukunda, Manager of Monitoring and Intelligence at the Financial Intelligence Authority (FIA), called for strong regulations, and also for close cooperation amongsr government agencies, private sector and civil society, also amongst regional authorities to fight IFFs.
“Strong anti–money laundering laws and regulatory frameworks are essential to combating IFFs, but due to the transnational nature of these crimes, effective international cooperation remains central to FIA’s work,” says Natukunda.
Private-sector reporting, he says, is critical and financial institutions, insurance companies, and capital markets must submit cash transaction reports, suspicious transaction reports, and international wire transfer records that enable FIA to detect and disrupt illicit flows.
However, Natukunda says that while technology is being applied to fight crime, it is also enabling the types of crime to evolve, one of the reasons financial crime will never be eradicated.
On her part, SEATINI Uganda Executive Director Jane Nalunga says regional tax regimes are fragmented and non-cohesive, weakening trade, political, and fiscal power, calling for harmonisation to support integration, privatization of trade, and effective negotiation at international levels.
But challenge with trade between the region and the world is the global economic and trade system which is unfair to African countries, limiting influence over tax rates and interest rates, and necessitating collective action to build informed policies that protect domestic interests.
Meanwhile the West increasingly distancing itself from financing Africa, according to Nalunga, means Arica is on its own and must think of how to survive.
Maurice Kibalya, MP Bugabula County South and Member of the National Economy Committee, said parliament had a lot of work to do, but despite the capacity of the members, not much is being done to fight corruption and IFFs.
He wondered why parliament would pass a budget of UGX 70 trillion well knowing the annual domestic revenues amount to less than half of that.
“The national budget keeps expanding beyond what we collect, pushing us into unsustainable borrowing. When loans serve personal interests rather than national priorities, we undermine growth and deepen the debt crisis,” he says, suggesting that the big deficit is aimed at creating avenues for syphoning resources out of government coffers
.He also criticized government tax incentives policies, as well as bailouts of entrepreneurs, saying: “It is unacceptable that government continues to bail out wealthy individuals who fail to contribute to national production, while communities lack basic services. Our economic policies must stop favouring the privileged at the expense of the majority.”
James Kinyua, Project Manager, Transparency International Kenya, urged the governments to intensify tools like asset recovery and whistle blowers protection to fight financial economic crimes that drain the countries of resources.
“Robust beneficial ownership transparency, strengthened asset recovery frameworks, witness protection, and regional cooperation across EAC member states are critical to improving domestic resource mobilization and ensuring an even playing field for businesses.
“Weak asset recovery, poor whistleblower protection, and limited institutional coordination prevent governments from reclaiming lost resources, reducing budget deficits, and strengthening citizen trust in governance,” he says.
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