OKOTH AGONDA: Tax evasion silent threat to growth

Taxation is the lifeblood of any government, fuelling the machinery that propels healthcare, education, infrastructure and security.

It is the core of national development, enabling governments to provide essential services to their citizens.

But in recent years, one of the greatest threats to this system is the growing menace of tax evasion and illicit financial flows.

While many pay their taxes, a significant number of individuals and businesses continue to find ever more sophisticated ways to evade them, costing governments billions each year.

This theft, in both developed and developing nations, undermines public services, fosters inequality, stunts economic growth and hinders development.

Tax evasion is not just a financial crime, it is a direct assault on fairness. Those who evade taxes, often by exploiting legal loopholes or engaging in illegal schemes, create an unlevel playing field.

For businesses that comply with tax regulations, the tax burden becomes unreasonably heavy, as they must shoulder the costs of public services and infrastructure while their competitors find ways to bypass the system.

The result is unfair competition and a less efficient economy, where only those playing by the rules are penalised.

This ultimately harms the public good and erodes trust in both the market and government institutions. In fact, illicit financial flows are one of the largest obstacles to achieving the UN’s Sustainable Development Goals.

Without the revenue needed to invest in education, health and infrastructure, developing nations are left in a perpetual cycle of poverty.

The issue goes beyond the borders of any single country. Tax evasion is global, with individuals and corporations exploiting international loopholes, discrepancies in regulations and weak enforcement mechanisms to hide their wealth and profits in offshore accounts or tax havens.

It is a problem that transcends borders and demands a coordinated international response. If countries are to effectively combat tax evasion, they must work together, sharing information, coordinating enforcement actions and closing gaps in tax laws that allow illicit financial flows to thrive.

In addressing this issue, governments must adopt a ‘whole-of-government’ approach. Tax authorities alone cannot tackle this problem.

Other sectors such as customs, law enforcement and financial crime units must work together, pooling their expertise and resources to track and trace financial flows.

Often, information that could expose tax crimes lays with agencies outside of tax departments, such as banks, securities regulators and customs authorities.

Only through inter-agency collaboration can governments gain the full picture of illicit activities and take meaningful action.

Technology also plays a crucial role in modernising the fight against tax evasion. Digital tools such as artificial intelligence, blockchain and data analytics provide governments with the means to detect and disrupt financial crimes in real-time.

Blockchain, for example, offers an immutable record of transactions, making it easier to trace illicit money flows.

AI can help authorities spot patterns that indicate suspicious activities, allowing them to intervene before harm is done.