PROPER TRANSFER PRICING CAN LEAD TO HIGHER REVENUES FOR AFRICAN COUNTRIES
The International Monetary Fund (IMF) beliefs that African countries can get more revenues from mining through engaging in proper transfer pricing.
A few African countries have real enjoyed revenues generated from the mining industry. Still many have not. Research findings from the natural resources Governance Institute indicated ways of preventing tax erosion from African countries rich with minerals.
It should be the dream of everyone on how to transform natural resources into highly sustainable economic growth. Alexandra Readhead, the author of Preventing Tax Base Erosion in Africa points out the following shortcomings by Countries with mineral resources in Africa:
- Inadequate legislation
- Lack of interest on information from mining companies for justification of their expenses
- Failure to check the expenses validity
- Tax inspectors who lack knowledge on Transfer pricing
- Lack of calculated decisions on what type of incentives to offer mining companies to avoid giving away too much in the form of tax exemptions.
Governments in countries where mining takes place have a potential to generate more revenues from the mining activities through taking advantage of transfer pricing.
What is Transfer Pricing?
Alexandra Readhead defines transfer pricing as follows:
“the mechanism by which the price of exchange of goods and property is set between related parties.”
This clearly means that prices are not determined by the forces of supply and demand. Hence, it is subject to abuse. The International Monetary Fund (IMF) estimates that Africa loses revenues estimated to be valued between $100 to $300 billion annually due to tax avoidance. Tax transfer and abuse is higher in Africa and other developing countries.
African countries should work towards formulating Transfer pricing regulations and building the expertise of their taxmen on the topic of transfer pricing.
Below is a video from SABC News on the topic of transfer pricing for South African case.