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AfricaMoney | August 22, 2017

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Tax haven alert: Mauritius tops Sub-Saharan Africa in financial secrecy

Tax haven alert: Mauritius tops Sub-Saharan Africa in financial secrecy

Mauritius is in the spotlight for being a tax haven again as the island economy was pinpointed as the least transparent country in Sub-Saharan Africa on the financial secrecy index (FSI). (Image:  aims-mauritius.com)

Mauritius is in the spotlight for being a tax haven again as the island economy was pinpointed as the least transparent country in Sub-Saharan Africa on the financial secrecy index (FSI).

Globally, the island nation was ranked at 19th position with a high secrecy score of 80 points in the index released by the Tax Justice Network last week. It may be noted that the island nation’s financial transparency has deteriorated as, on the last FSI rankings for 2011, Mauritius stood at 32nd spot with a secrecy score of 74 points.

In the region, South Africa tailed Mauritius by as many as 16 slots at the 36th position, and has a moderately secretive financial system with a secrecy score of 53 points, compared to Mauritius which has a highly secretive financial system with a secrecy score of 80 points.

Switzerland again emerged on the top of the FSI, followed by Luxembourg (3rd on 2011 FSI), Hong Kong (ranked 4th last year), Cayman Islands (previously ranked 2nd) and Singapore (earlier at the 6th spot).

Specific analysis for Mauritius done by TJN basis information as on December 2012 indicates that company ownership details are not publicly available, the island does not prohibit trusts or private foundations and even allows harmful legal vehicles, and also fails to adequately curtail banking secrecy. However, additional norms to make companies more transparent have been issued recently by the Mauritian Financial Service Commission (FSC), and these may be expected to dilute secrecy conditions and improve its standing.

The island economy – a leading offshore financing hub – is facing increasing issues with attracting fresh investments as tax treaties with important investment destinations such as India and South Africa are in a state of flux.

India, one of the foremost investment destinations, shows an exceptionally high positive ‘financial secrecy’ association for its top investing countries. The top 5 investing countries into India are high on the FSI as well, and this includes countries that are largely considered non-tax havens. Mauritius continues to be the top investing country when it comes to foreign direct investments (FDI) into India, those next in rank are Singapore, UK, Japan and USA with an FSI rank of 5, 21, 10 and 6 respectively.

It may be noted that the FSI ranking is based on a combination of a country’s secrecy score and a scale weighting based on their share of the global market for offshore financial services.

To illustrate, even though Mauritius had an exceedingly high secrecy score of 80, but because it accounts for less than 1% of the global market for offshore financial services it was ranked lower at 19 against Singapore which found itself ranked fifth on the FSI even though it had a lower secrecy score of 70 points.

According to the Tax Justice Network (TJN), a group lobbying for greater transparency in offshore financing, a secrecy jurisdiction provides facilities that enables entities to escape or undermine the laws, rules and regulations of other jurisdictions elsewhere, using secrecy as a prime tool.

The group highlights that an estimated $21 to $32 trillion of private financial wealth is located, untaxed or lightly taxed, in secrecy jurisdictions around the world. Illicit cross-border financial flows add up to an estimated $1-1.6 trillion each year. Since the 1970s, African countries alone are estimated to have lost over $1 trillion in capital flight, dwarfing their current external debts of ‘just’ $190 billion and making Africa a major net creditor to the world.

Eighty-two countries and territories were included in the 2013 Financial Secrecy Index. TJN used 15 indicators for computing the secrecy scores, including banking secrecy, disclosure of company ownership, maintenance of records of local trusts and foundations, exchange of information, anti-money laundering legislations, etc.  The inaugural index was published in 2009 and followed by a second FSI ranking report in 2011.

Source: Tax Justice Network

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