Tackling Tax-Related Illicit Financial Flows

Read the study here.

Illicit financial flows (IFFs) in general and particularly tax-related IFFs (TIFFs) pose systemic risks for countries’ financial and tax systems. They hamper the efforts to enhance domestic revenue/resource mobilisation (DRM) and foster inequality, create poverty, insecurity, and financial challenges undermining public confidence and trust.

Improving domestic revenue mobilisation (DRM) is crucial for implementing the Sustainable Development Goals (SDGs). In this past decade, the concept of illicit financial flows (IFFs) became central to the United Nations 2030 Agenda for Sustainable Development. The focus of the post-2015 development agenda includes policy actions to address illicit financial flows (IFFs) and combat tax evasion and tax avoidance. Addressing tax-related illicit financial flows (TIFFs) helps countries to mobilise domestic revenue more efficiently and effectively.

The Tax Justice Network estimated the tax loss of 20 countries in 2017 in comparison with their total tax revenue (see graph below). The estimations were very alarming, especially for countries such as Pakistan, Sierra Leone, Tanzania, and Uganda (which are ATI partner countries), because their estimated losses exceeded 20% of their total tax revenue. In general, the magnitude of such losses is greater in natural-resource-rich countries than in other countries (United Nations Economic Commission for Africa – UNECA).

The Addis Tax Initiative (ATI), in line with the ATI Declaration 2025, is committed to enhancing partner countries' financial resources through fair and transparent tax systems and thus combatting tax-related illicit financial flows (TIFFs). This recent study on ATI partner countries' perspectives on tackling tax-related illicit financial flows discusses some of the initiatives and policy recommendations on taxation to tackle TIFFs. It also offers an overview of the main practices of the ATI partner countries that participated in the study (Indonesia, Kenya, Pakistan, Rwanda, Tanzania, and Uganda) – including their strategies and regulatory frameworks, institutional contexts, challenges and successes.

The aim of the study is to encourage partner countries to learn from each other's experiences and take regulatory measures accordingly. At the same time, development partners and donors need to increase awareness on the threat of TIFFs, enhance capacity-building support measures, and encourage countries to take part in international tax organisations and fora.

The study on ATI partner countries' perspectives on tackling TIFFs was commissioned to the International Bureau of Fiscal Documentation (IBFD) and funded by the Ministry of Foreign Affairs of the Netherlands. It will be officially launched during the ATI General Assembly 2023 inviting all members to engage in the discussions.