In a comprehensive study on the level of trade misinvoicing in Egypt in 2016, GFI found that the estimated potential tax revenue losses to the Egyptian government that year is USD 1.6 billion, equivalent to 4.1 % of the value of Egypt’s total government revenue collections in 2016.
Using a trade gap analysis, GFI was able to estimate potential revenue losses to the misinvoicing of Egypt’s imports and exports across all trading partners. GFI estimates that the value of the trade gap for misinvoiced goods equals USD 8.5 billion, or 10.5 % of the country’s total trade of USD 80.6 billion in 2016.
Here are a few other notable findings:
• Of the total estimated lost potential revenue of USD 1.6 billion, approximately USD 404 million was due to export misinvoicing and approximately USD 1.2 billion was due to import misinvoicing.
• The USD 1.2 billion in import misinvoicing can be further broken down by uncollected VAT tax (USD 410 million), uncollected customs duties (USD 358 million), and uncollected corporate income tax (USD 428 million).
• The USD 404 million in export misinvoicing can be further broken down by uncollected corporate income tax (USD 181 million) and uncollected tax from royalty payments (USD 223 million).
• In 2016, some of the Egyptian imports most at risk for high values of import under-invoicing were essential oils, vehicles, machinery and meats.
• In 2016, some of the Egyptian imports most at risk for high values of import under-invoicing were from Ireland, China and Switzerland.
• Looking simultaneously at both high-risk commodities and high-risk trade partners in 2016, GFI found that under-invoiced imports of essential oils from Ireland, Switzerland and the Netherlands, as well as nearly half of all imports from China, were highlighted as potential high-level risks for revenue losses.
While a great deal of attention has been placed on the issue of profit shifting and abusive transfer pricing by multinational corporations, GFI believes revenue losses from trade misinvoicing are likely equivalent to those attributed to tax evasion and profit shifting by multinational corporations.
GFI urges Egypt to strengthen the penalty for trade misinvoicing under Article 122, as the penalties at present are insufficient to deter criminals. GFI also recommends Egypt consider using GFI’s online tool GFTrade, designed to build the capacity of customs authorities to better detect misinvoicing as transactions are occurring and take corrective steps in real time.
GFI further recommends Egypt set a date for beginning automatic exchange of tax information and that Egypt should consider signing on to support the Addis Tax Initiative, a group of 55 countries committed to enhancing the mobilization and effective use of domestic revenues and to improving the fairness, transparency, efficiency and effectiveness of their tax systems.
Read the full report here.