South Africa Government Losing Billions To Trade Mis-Invoicing

Analysts estimate the South African government has lost a total of about $37 billion as a result of misinvoicing in its global trade operations.

Reports this week in South African publication the Daily Maverick said think tank Global Financial Integrity (GFI) has calculated the South African government lost about $7.4 billion every year in what would have been government revenue between 2010 and 2014. The losses can be traced back to the practice of misinvoicing, in which companies looking to move money across borders illicitly misrepresent the value of trade on an invoice.

GFI’s report, “South Africa: Potential Revenue Losses Associated With Trade Misinvoicing,” warns that this practice “has become normalized n many categories of international trade,” and added that its $37 billion estimate is “conservative.”

The practice of misinvoicing occurs both on import and export transactions. A company may overstate the value of goods they import, paying that invoice to move excess funds overseas or avoid VAT or customs taxes. Companies may also understate the value of their cross-border invoices sent when they export goods, or over-invoice to claim rebates, according to reports.

In addition to risks of money laundering, misinvoicing causes government entities to lose out on customs duties, VAT and other taxes, while also often moving money out of national economies.

To calculate its figures, the GFI examined statistics from the South African Revenue Service (SARS) to available data from the United Nations Comtrade Database to pinpoint discrepancies in export and import data. The think tank estimates that annual under-invoicing on imports to South Africa is valued at $16.3 billion, and over-invoicing at $9.8 billion.

Annual under-invoicing on exports from South Africa were calculated at $11.6 billion, and over-invoicing and $8.6 billion, reports said.

The publication noted that South Africa political party the EFF has made illicit financial flows a key focus in lawmaking efforts, but recently tabled an anti-illicit financial flows bill in Parliament.