First published by ISS Today
The release of the Paradise Papers last year and the Panama Papers in 2016 revealed the role tax havens play in facilitating tax avoidance,taxevasionand illicit financial flows. The Panama Papers showed dealings associated with tax evasion and illicit dealings, while the transactions uncovered by the Paradise Papers involved largely tax avoidance.
Both flows negatively affect sustainable development in Africa, but tax evasion tends to generate a bigger response than tax avoidance, and subsequently provokes stronger political will to crack down on tax havens.
Understanding the differences between tax evasion and avoidance, their influence in Africa and whether they qualify as illicit financial flows is essential when developing effective responses. Both are attempts by an individual or corporation to pay fewer taxes – but while tax evasion is illegal, tax avoidance isn’t.
In practice, the distinction between the terms is not always clear.