At a recent breakfast debate organized by Policy Forum with the support of Thomson Reuters Foundation (TRF), the spotlight was on the devastating impact of illicit financial flows (IFFs) on Tanzania’s economy. According to the 2021 Global Financial Integrity report, Tanzania loses roughly $1.83 billion every year as companies manipulate invoicing practices on exports and imports, a figure that underscores a critical economic challenge.
Presenter Israel Ilunde of the Policy Forum's Tax Justice Working Group (TJWG) emphasized that this staggering loss could instead finance budget deficits and support vital sectors such as agriculture, education, and health. He noted that addressing IFFs is not merely about plugging financial leaks but about safeguarding the nation’s development and ensuring that every shilling lost is reinvested into public services.
While Tanzania faces a pressing crisis, the debate also revealed that the adverse effects of IFFs extend far beyond its borders. Between 2010 and 2020, developing nations across the Global South have collectively lost over $1 trillion each year due to tax evasion, corruption, trade mis-invoicing, and other criminal activities. The 2020 Global Financial Integrity report highlighted that trade mis-invoicing alone has siphoned off as much as $835 billion annually between 2008 and 2017.
Adding further context, findings from the Organisation for Economic Co-operation and Development (OECD) 2022 Base Erosion and Profit Shifting (BEPS) report estimate that aggressive tax avoidance schemes by multinational corporations cost countries up to $240 billion every year.
The debate then broadened its focus to Africa, where the financial haemorrhage is particularly severe. Initially, the African Union High-Level Panel on IFFs pegged the continent’s annual losses at $50 billion; however, UNCTAD revised this figure in 2020 to $88.6 billion—roughly 3.7% of Africa’s GDP. These losses far outstrip the continent’s annual inflows of Foreign Direct Investment (FDI) and Official Development Assistance (ODA), with the extractive industries (oil, gas, and mining) being major contributors through rampant trade mis-invoicing.
Ilunde also shed light on the specific impact of IFFs on Tanzania’s agriculture sector. Despite its critical role in the economy, Tanzania has failed to meet the Malabo Declaration’s recommendation of allocating at least 10% of the national budget to agriculture. In fact, the agriculture budget’s share has declined from 5.3% in 2016/17 to a mere 1.6% in 2020/21, resulting in delayed fund disbursements, insufficient extension services, and inadequate support for agricultural mechanization.
The debate also featured a brief discussion by Dr. Richard B. Mbunda, a researcher and lecturer at the University of Dar es Salaam, who highlighted the need for collaboration among various actors to tackle IFFs. Dr. Mbunda mentioned the Tanzania Revenue Authority (TRA), the Bank of Tanzania (BOT), and the Office of the Controller and Auditor General as key players.
Dr. Mbunda raised concerns about the effectiveness of current reporting mechanisms, questioning what actions are taken after IFFs are reported. He emphasized the importance of investing in advanced digital tax monitoring tools, such as e-invoicing and AI-driven forensic auditing, and providing training for TRA auditors in forensic accounting and digital financial analysis. He also stressed the need for strengthening international cooperation through: Signing automatic tax information exchange agreements, improving cooperation with the Financial Action Task Force (FATF), Engaging in East African Community (EAC) and Southern African Development Community (SADC) anti-IFF efforts.
Concluding the debate, stakeholders called on the Tanzanian government to take urgent action by strengthening legal and regulatory frameworks, enhancing coordination among regulatory agencies, investing in advanced digital tax monitoring tools, boosting international cooperation, and ensuring timely, increased budget allocations.