New global minimum tax agreement: Here’s how Africa stands to benefit

Earlier this month, some 136 countries reached a monumental agreement to impose a minimum corporate tax rate of 15 percent on earnings. This agreement, championed by the Organisation for Economic Co-operation and Development (OECD), is projected to bolster government tax revenues by a staggering $150 billion annually. The implications of this groundbreaking deal for Africa are immense, and Larry Eyinla, the Africa Tax Leader at EY, delved into the potential benefits for the continent in an exclusive interview with CNBC Africa. The new tax pact marks a paradigm shift in the tax landscape, which has been predominantly shaped by regulations crafted for traditional brick-and-mortar businesses over the past century. With the global economy rapidly transitioning to a digital-centric model, the need for a revised tax framework has become imperative. The agreement essentially mandates that multinational corporations, particularly technology and data-driven firms, pay a fair share of taxes in countries where they generate revenue, regardless of the location of their headquarters or workforce. This revamp holds significant promise for Africa, as it stands to receive substantial tax contributions from companies that previously evaded meaningful tax payments owing to their limited physical presence on the continent. Larry further elaborated on the far-reaching implications for multinational corporations under the new tax regime. Notably, companies will be obligated to pay taxes both in their home country and in regions where they have a user base. While this comprehensive approach to taxation has garnered criticism from different quarters, including the US, Europe, and Africa, the discontent signals the robustness and fairness of the agreement. The pertinence of this global tax deal lies in its ability to ensure that companies contribute taxes to jurisdictions where they conduct digital business and interact with users, thereby aligning profit realization with tax obligations. In essence, the impact of the minimum corporate tax rate of 15 percent primarily targets multinational corporations with a global presence, while local companies, such as those in South Africa subject to a 28% corporate tax rate, remain unaffected, unless they choose to adjust their tax rates accordingly. However, digital companies operating across multiple continents could also be subject to tax adjustments based on their revenue and profits. The estimated $150 billion annual boost in global tax revenues outlined by the OECD underscores the significant financial windfall that governments worldwide stand to gain. Yet, Larry emphasized that African countries have the potential to amplify their tax collections even further by addressing persistent challenges such as illicit financial flows. To this end, the forthcoming Africa Tax Summit aims to explore strategies for expanding the tax base and enhancing compliance across the continent. By incentivizing tax contributions from the informal sector, leveraging technology and artificial intelligence for tax enforcement, and combatting illicit financial outflows, African governments can harness untapped revenue streams to drive economic growth and development post-COVID. In conclusion, the new global minimum tax agreement heralds a transformative era in international taxation, offering Africa a golden opportunity to bolster its fiscal resilience, combat tax evasion, and foster sustainable economic progress. By aligning with global tax standards and addressing domestic tax challenges, African nations can leverage this landmark agreement to usher in a new era of robust and equitable tax systems.