Trade Mis-Invoicing And Abusive Transfer Pricing In Ghana’s Commodity Sector
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Date
2022-07
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University Of Ghana
Abstract
This thesis contributes to the limited empirical analysis of the volumes of Illicit Financial Flows (IFFs) through trade mis-invoicing recorded in exports from Ghana. The thesis examines the volumes of illicit financial flows through trade mis-invoicing in five top export commodities of Ghana, namely: gold, cocoa beans, cocoa paste, bauxite, and manganese. It answers the questions of what the value chains and the risks for IFFs for those commodities are, how much trade mis-invoicing there is in these important export commodities and what the determinants for trade mis-invoicing are in those commodities.
The study uses the Partner Country Trade Gap (PCTG) method to measure trade mis-invoicing with macro macro-level statistics from the UN COMTRADE Database as an initial step to determine the presence of trade mis-invoicing, followed by the Price Filter Method, which has been shown to provide more accurate estimates of IFFs due to the use of transaction transaction-level data. The thesis employs transaction-level data from the Customs Division of the Ghana Revenue Authority in generating the estimates of trade mis-invoicing for the Price Filter Method. The study ends with a regression analysis of the determinants of IFFs in the selected commodities.
The value chain analyses of the commodities show that risks for IFFs arise mainly from transfer pricing due to multinational firms’ international trade operations. Other risk factors include artisanal, small-scale, and informal firms, regulatory infrastructure for verifying export valuation and transit trade from neighbouring countries.
The estimates of trade mis-invoicing generated using the transaction level data from Ghana Customs with the price filter methods indicate that: 18.87% of bauxite exports, 11% of gold exports, 7.2% of cocoa paste exports, 1% of cocoa bean exports and 0.65% of manganese exports were undervalued while 0.2%, 0.9% 3.2%, 4.7% and 2.4% of gold, cocoa beans, cocoa paste, bauxite and manganese exports respectively were over-valued from 2011 to 2017. Overall, the results indicate the presence of trade mis-invoicing in Ghana’s commodity exports.
In analyzing the determinants of trade mis-invoicing in the selected commodities, the study finds that for undervaluation, GDP growth, Current Account Balance and the Exchange Rate have some influence while the Current Account Balance, Inflation, Tax Differential, GDP growth, Transfer Pricing Risk and Transfer Pricing Rank have some influence in the overvaluation observed.
The study has the following policy implications. First, it recommends that policymakers need to prioritize the development of institutional expertise to map, control and block the sources of the resulting tax base erosion as a result of trade mis-invoicing. Second, there is a need to improve data collection capacity of the various institutions engaged in the export of these commodities, greater co-operation among the various institutions in these sectors to reconcile data collected and constant skills improvement of personnel of these units. Finally, information and communication technology tools, especially computers, relevant software and access to critical databases also need to be upgraded to match those of the private sector actors in order to ease tax assessments and payments tracking.
Description
PhD. Finance
Keywords
Trade Mis-Invoicing, Ghana’s Commodity Sector, Abusive Transfer, Pricing