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Nigeria loses $2.2 billion to trade misinvoicing – GFI study

02 Nov 2018, 07:34 am
Financial Nigeria
Nigeria loses $2.2 billion to trade misinvoicing – GFI study

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The Global Financial Integrity said the estimated value gap of all imports and exports represents approximately 15 percent of the country’s total trade.

Nigerian Minister of Finance Zainab Ahmed

Global Financial Integrity (GFI), a non-profit research and advisory organisation based in Washington, DC, has released a report, showing that Nigeria lost $2.2 billion to trade misinvoicing in 2014, the most recent year, which has sufficient data as published by the United Nations Comtrade. According to GFI, this estimated value gap of all imports and exports represents approximately 15 percent of the country’s total trade.

GFI defines trade misinvoicing as a "method for moving money illicitly across borders which involves the deliberate falsification of the value or volume of an international commercial transaction of goods or services by at least one party to the transaction." It also constitutes the largest component of illicit financial outflows measured by GFI.

The organisation said trade misinvoicing occurs in four ways: under-invoicing of imports or exports and over-invoicing of imports or exports. Import under-invoicing occurs when government collects fewer taxes and custom duties due to lower valuation of goods.

In the case of export under-invoicing, the exporting company collects less revenue than would be anticipated and, therefore, reports lower income. Thus, it pays less income tax.

Nigeria's trade misinvoicing figure for 2014 as found in the report, titled: Nigeria: Potential Revenue Losses Associated With Trade Misinvoicing, represents the estimated value of the gap between what was reported by Nigeria and its trading partners.

“The practice of trade misinvoicing has become normalised in many categories of international trade,” said Raymond Baker, President of GFI. “It is a major contributor to poverty, inequality, and insecurity in emerging market and developing economies.”

He added that the social cost to trade misinvoicing undermines sustainable growth in living standards and exacerbates inequities and social divisions, which are critical issues in Nigeria today.

The portion of revenue lost due to the misinvoicing of export, according to the report, was $1.3 billion, which is related to a reduction in corporate income taxes and royalties. The portion of revenue lost due to the misinvoicing of import was $880 million.

According to the report, Nigeria’s global trade data showed that as much as $200 million was lost due to import under-invoicing of five product types. These products are vehicles ($100 million), iron and steel ($40 million), electrical machinery ($20 million), ceramics ($20 million), and aluminium products ($20 million).

The report recommends three ways that Nigeria can curtail revenue losses due to trade misinvoicing. These are legislative and regulatory measures; detecting misinvoicing and taking corrective steps in real-time; and clawing back lost revenue through audits and reviews.

Founded in 2006, GFI produces high-calibre analyses of illicit financial flows, advises developing countries on effective policy solutions, and promotes pragmatic transparency measures in the international financial system as a means to global development and security.


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