Lanterna Rally

Author: Bernd Otto Schlenther

Publisher:

Published: 2018

Total Pages:

ISBN-13:

Developing countries are hard-pressed to spend more on public services and infrastructure, if they want their economies to grow and to achieve the Sustainable Development Goals (SDG). As such, they need to increase their tax effort by increasing tax revenue as a percentage of GDP. Tax policy formulation faces many complexities in developing countries and is continuously challenged by macro-economic volatility and an ever-changing risk environment. So-called aÌ22́Ơ¿3illicit financial flowsaÌ22́Ơ℗+ (IFFs) from developing countries in Africa are said to be pervasive and detrimental to African economies, because they pose risks to macro-economic stability, tax revenues and governance. Literature identifies various reasons for IFFs. These may include tax evasion, smuggling, people trafficking, abusive transfer pricing and customs fraud, currency exchange violations, money laundering, corruption and terrorist financing aÌ22́Ơ0́− or a combination of these. Broad consensus exists that IFFs are ill defined, and this in turn implies that different policy handles may be available to address the problem. I focus on tax policy as a key component to address IFFs: aside from its revenue mobilization properties, it is an important tool for good governance, democracy and the basis for the social fiscal contract between governments, on the one hand, and citizens and corporations, on the other. I apply the social sciences theory of aÌ22́Ơ¿3wicked problemsaÌ22́Ơ℗+ to the concept aÌ22́Ơ¿3IFFs,aÌ22́Ơ℗+ in order to ascertain whether IFFs meet the criteria of wicked problems as set by Rittel and Webber in aÌ22́Ơ¿3Dilemmas in a General Theory of PlanningaÌ22́Ơ℗+ (1973), and whether the concept aÌ22́Ơ¿3IFFsaÌ22́Ơ℗+ qualifies as a wicked problem. This requires that, as a minimum, the prominent inter-connected subsets of problems which cut across multiple policy domains and levels of government are identified before a solution can be framed. I use the diamond industry value chain to illustrate how inter-connected subsets of problems and policy overlaps related to IFFs, manifest. I choose the diamond industry because it can be viewed as a microcosm that is illustrative of the pervasiveness of IFFs. In framing a solution, I explore whether action strategies or collaborative approaches, such as knowledge networks or other forms of horizontal government initiatives, for example the whole of government approach, are feasible solutions to address IFFs. I identify the main types of risks in the diamond value chain and action strategies to address these risks. I find that tax policy on its own, no matter how well developed, is insufficient to address IFF concerns and that sound anti-money laundering and anti-corruption policies are equally important. I find that a aÌ22́Ơ¿3whole of government approachaÌ22́Ơ℗+ supported by sound risk management practices, is best suited to address wicked problems such as IFFs.