KAMPALA — Governments around the world are grappling with the growing challenge of cross-border tax fraud, a complex web of illicit practices that exploit international trade and financial systems, resulting in substantial revenue losses and undermining fair competition, tax experts say.
Revenue authorities note that cross-border tax fraud goes beyond simple tax evasion, encompassing sophisticated schemes that distort markets, weaken public institutions, and enable illicit financial flows such as money laundering and corruption.
Officials say the impact is particularly severe for developing economies, where lost revenues translate into reduced funding for essential public services, infrastructure, and social protection programmes.
Smuggling remains a key channel
One of the most prevalent forms of cross-border tax fraud is smuggling, the illegal movement of goods across national borders to evade customs duties and domestic taxes.
High-demand goods such as alcohol, tobacco, fuel, pharmaceuticals, and electronics are frequently targeted. By bypassing official trade channels, smugglers undercut compliant businesses, distort pricing, and undermine domestic industries that operate within the law.
Customs officials warn that smuggling not only erodes tax revenues but also poses public health and safety risks, particularly where counterfeit or substandard goods enter local markets.
Trade mis-invoicing fuels revenue leakage
Another major concern is trade mis-invoicing, where importers or exporters deliberately falsify the value of goods on commercial invoices.
Common practices include undervaluation of imports to reduce customs duties and tariffs, and overvaluation of exports to facilitate illegal capital flight or inflate tax deductions.
Authorities say such practices are often used to disguise illicit financial flows and move money across borders undetected.
“Trade mis-invoicing is particularly difficult to detect because it exploits gaps in valuation systems and weak coordination between customs and tax agencies,” a senior tax official said.
Transfer pricing under scrutiny
Multinational corporations have also come under increased scrutiny over transfer pricing manipulation, a practice in which related companies artificially set prices for transactions between subsidiaries operating in different jurisdictions.
By shifting profits from high-tax countries to low- or no-tax jurisdictions, multinational firms significantly reduce their tax liabilities, depriving host countries of revenue generated within their borders.
Tax experts note that while transfer pricing is legal when conducted at arm’s length, manipulation of intra-group pricing remains a persistent enforcement challenge for revenue authorities.
Wider economic consequences
Beyond revenue losses, cross-border tax fraud distorts market competition by placing compliant businesses at a disadvantage. Smuggling and mis-invoicing enable fraudsters to offer lower prices, while aggressive transfer pricing allows multinational firms to outcompete local enterprises unfairly.
The proceeds of such activities often feed into broader illicit financial flows, facilitating money laundering, corruption, and organised crime, further destabilising economies and eroding public trust in financial and regulatory systems.
Strengthening prevention and enforcement.
Experts argue that combating cross-border tax fraud requires coordinated and sustained action across jurisdictions.
Enhanced international cooperation among tax authorities, customs agencies, and law enforcement bodies is increasingly viewed as critical. Information sharing, joint investigations, and harmonised enforcement strategies can help disrupt transnational fraud networks.
Governments are also turning to advanced data analytics and artificial intelligence to detect suspicious trade patterns, identify high-risk sectors, and flag anomalous transactions for further scrutiny.
In addition, engagement with the private sector, including banks, logistics companies, and freight forwarders, is seen as essential. Authorities say robust whistleblower protections and incentives can encourage early reporting of suspicious activities.
Public accountability as deterrence
Revenue officials further emphasise the importance of monitoring high-risk industries through specialised audit units and strengthening public reporting on enforcement outcomes.
Publishing details of exposed fraud schemes, successful prosecutions, and recovered revenues, they say, can act as a deterrent and reinforce confidence in the tax system.
As governments intensify efforts to curb cross-border tax fraud, experts caution that success will depend on aligning legal frameworks, institutional capacity, and operational tools.
“A coordinated, data-driven and transparent approach is essential if countries are to protect public revenues, promote fair competition, and maintain trust in global financial systems,” one official noted.
