Global Financial Integrity


GFI: Egypt lost estimated $1.6 billion to trade misinvoicing in 2016


Washington, DC –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 approximately US$1.6 billion, equivalent to 4.1 percent of the value of Egypt’s total government revenue collections in 2016.Trade misinvoicing is a method for moving money illicitly across borders which involves the deliberate falsification of the value, volume, and/or type of commodity in an international commercial transaction of goods or services by at least one party to the transaction and constitutes the largest component of illicit financial flows as measured by GFI.

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 US$8.5 billion, or 10.5 percent of the country’s total trade of US$80.6 billion in 2016.

The report, titled  Egypt: Potential Revenue Losses Associated with Trade Misinvoicing, analyzes Indonesia’s bilateral trade statistics for 2016 (the most recent year for which sufficient data are available) as published by the United Nations Comtrade database. The detailed breakdown of bilateral Indonesian trade flows in Comtrade allowed for the computation of trade value gaps that are the basis for trade misinvoicing estimates. Import gaps represent the difference between the value of goods Indonesia reports having imported from its partner countries and the corresponding export reports by Indonesia’s trade partners. Export gaps represent the difference in value between what Indonesia reports as having exported and what its partners report as imported.

“The social costs of trade misinvoicing can undermine sustainable growth in living standards in developing countries, as well as exacerbate already pronounced inequities in the distribution of income and wealth,” noted GFI President & CEO Tom Cardamone. “Moreover, by depressing government revenues and exacerbating inequality, those social costs can also impede progress in the developing world on important social goals, such as commitments to achieve the internationally-agreed Sustainable Development Goals (SDGs).”

Here are a few other notable findings:

  • Of the total estimated lost potential revenue of US$1.6 billion, approximately US$404 million was due to export misinvoicing and approximately US$1.2 billion was due to import misinvoicing.
  • The US$1.2 billion in import misinvoicing can be further broken down by uncollected VAT tax (US$410 million), uncollected customs duties (US$358 million), and uncollected corporate income tax (US$428 million).
  • The US$404 million in export misinvoicing can be further broken down by uncollected corporate income tax (US$181 million) and uncollected tax from royalty payments (US$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 (ATI), 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.

The report was published with the generous support of the Ford Foundation.


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