Global Financial Integrity

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The Implied Tax Revenue Loss from Trade Mispricing

This February 2010 report from Global Financial Integrity estimates the developing world is losing roughly US$100 billion per year in tax revenue loss from illicit financial flows.

Every year crime, corruption, and tax evasion drain $1 trillion out of developing countries. This report builds on the analysis put forward in our report “Illicit Financial Flows from Developing Countries 2002—2006” by more closely examining one particular form of financial outflow – trade mispricing – and showing how it removes money from a developing economy, in this case by depriving the government of tax revenue.

Report findings include:

  • The estimated range for tax revenue loss due to trade mispricing in developing countries, per year, is between $98 billion and $106 billion;
  • This estimated revenue loss is approximately 4.4 percent of the developing world’s total government revenue;
  • The top five countries with the largest tax revenue loss as a percentage of total government revenue are: Zimbabwe (31.5%), China (31%), Philippines (30.7%), Nicaragua (27.7%), and Mali (25.1%);
  • Rates of trade mispricing for the time period examined (2002-2006) nearly doubled from the first year of the range (2002) to the last (2006).

Trade mispricing moves more illicit money across borders than any other single phenomenon. To curtail these tax losses, developing and developed countries alike must work to curb the global shadow financial system that facilitates illicit financial flows.

GFI recommends citing from the most recently released research. The most recent annual report is Illicit Financial Flows to and from 148 Developing Countries: 2006-2015.