NDAMU SANDU
Zimbabwe could tap into the US$200bn tax revenue that could be harnessed as new tax rules compelling multinationals to pay a minimum level of tax on the income arising in each of the jurisdictions where they operate come into force.
But to benefit, Zimbabwe, alongside other African countries, have to accelerate the enactment of the domestic minimum top up tax (DMTT) legislation in line with the OECD-championed Global Anti-Base Erosion Rules (GloBE) which ensures that that multinationals pay a minimum of 15% in corporate income tax, tax experts said this week.
For African countries, the obsession with tax incentives will result in other jurisdictions benefitting, Logan Wort, executive secretary at the African Tax Administration Forum (ATAF) said.
“And so the low tax income countries and countries with a lot of incentives stand to lose if it does not develop a domestic minimum top up tax law within that country,” he said.
The call by experts to harness revenue under the GloBE rules comes as Africa has been rolling out corporate income tax incentives in a bid to lure foreign investors.
It also comes as Africa loses an estimated US$89bn annually to illicit financial flow.
Tax experts say the GloBE rules ensure that multinationals pay a minimum of 15% in corporate income tax.
If a jurisdiction gives tax incentives and the company pays less than 15%, that company still has to pay the 15% because in terms of the globe rules, they will have to pay a minimum of 15% tax, Wort said.
“And so the low tax income countries and countries with a lot of incentives stand to lose if it does not develop a domestic minimum top up tax law within that country,” he said.
The tax expert said countries should first do a cost benefit analysis before it rolls out incentives.
“You give a 10-year tax holiday and in year 9 they close or ask for extension,” Wort said.
ATAF deputy executive secretary Mary Baine said her organisation was assisting countries to be abreast of new developments.
“The situation calls countries to be alert to what is happening globally. What we are doing as ATAF is to help countries to unpack what is on the rules. Will I be able to collect more revenue from DMTT? The answer is yes,” Baine said.
“Look at your incentive scheme and see if this will affect you. If you have a huge incentive regime, you will be affected because if you don’t collect, another country will collect revenue for you.”
ATAF has been helping African countries to unlock more tax revenue. In the past eight years, ATAF has been able to bring more than US$3.8bn in taxes in some countries as part of its 28-country technical assistance programme. This year alone, the initiative brought in about US$300m in taxes, Wort said.
He said Africa has a massive opportunity to unlock tax revenue.
“It’s not the ideal platform. We didn’t get the best deal as Africans but the deal that’s on the table will bring in some tax significantly more. We must continue to fight for that right platform. We must continue to fight for even a better deal. While all of this is happening, we must begin to get the revenue due to us,” Wort said.
Thulani Shongwe, manager international tax at ATAF, said the tax to GDP ratio on the continent is low compared to Latin America which signalled that governments were losing money.
He said governments tend to be under pressure to give tax incentives to drive investment when it is, in fact, other areas, such as good governance, availability of skilled resources, political stability and policy certainty that tend to make investment positive decisions for large multinationals.
International tax expert Lee Corrick said it is estimated that 90% of multinationals will be covered by GloBE rules by 2025. A number of countries are intending to enact the rules next year, he said.
“…it’s very important that we consider that some African countries enact these new rules as quickly as possible,” Corrick said.
