Experts are continuing to challenge the findings of a 2016 report by the UN Conference on Trade and Development (UNCTAD) as well as separate research by Global Financial Integrity (GFI) and the Thabo Mbeki High Level Panel on Illicit Financial Flows (IFFs) on the scale of misinvoicing, particularly in Africa.

In an article on the South African financial news and analysis site, Moneyweb, journalist Amanda Visser catalogues sustained criticism of estimates of misinvoicing by UNCTAD, GFI and Mbeki’s panel, suggesting their methodologies may be too simplistic.

Calculations too simplistic

She points out that a GFI report suggests misinvoicing drains around US$800 billion from developing countries annually while Mbeki’s panel on IFFs estimates that revenue losses on just a few commodities amount to US$50 billion in Africa each year.

Visser points out that the Washington-based Centre for Global Development (CGD) think-tank as well as the South African Institute of Tax Professionals (Sait) have indicated that the methodology used to get these figures may be “problematic”.

Methodology questioned

GFI uses a methodology based on adding up gaps and mismatches in trade data to estimate misinvoicing, CGD said in a 2018 report.

While it is true that customs fraud is real, it is not clear that the influential and widely quoted figures arrived at in this manner can be directly interpreted as trade misinvoicing, the report added.

UNCTAD under fire

UNCTAD said mining companies were of smuggling billions of dollars of gold and between 2000 and 2014, and that 67 per cent of the value of total gold exports was lost from South Africa through under-invoicing.(Trade-based Financial Crime, 19 August 2016).

The South African Chamber of Mines and the South African Revenue Service (Sars) disputed the UNCTAD findings and commissioned an independent report which found that the mining companies and public agencies did report gold exports, but not in the right format for the UN International Trade Statistics Database (Comtrade). UNCTAD based its findings on Comtrade data.

Fresh criticism

Visser also quotes South African Institute of Tax Professionals CEO, Keith Engel, who told the journalist, “the numbers by GFI indicate a new method of post-colonial extraction. While no one doubts that the findings require careful review by the revenue authorities, the belief of vast sums lost could be misdirected.”

He added that the net result could lead to unnecessarily contentious tax disputes and even present a risk to foreign investment.

Visser’s full article, Truths and assumptions about misinvoicing; it’s not that simple can be found here.