Why the new global tax agreement is a welcome development for Africa
As you may well know, about one hundred and thirty (130) countries recently reached an agreement to address the global tax challenges that have arisen due to the digitisation of the global economy.
The agreement was championed by the Organisation for Economic Co-operation and Development (OECD), and below are two crucial things it aims to accomplish:
- To reform the global tax rules in such a way that gives countries more right to impose taxes on multinational digital corporations like Facebook and Google.
- To introduce a global minimum corporate tax rate of 15% on earnings.
In light of this development, experts believe the agreement will be immensely beneficial to African countries. Larry Eyinla, the Africa Tax Lead at Ernest & Young, said the former global tax framework was designed for the brick and mortar economy. According to him, it was about time a new global tax framework was adopted for the modern economy.
“This is actually a fundamental step in the right direction. The tax rules that we have been operating under have been around for over a hundred years. And those tax rules are really meant for the brick and mortar economy. As the world now transitions to this digital economy, there needs to be a different framework. And that’s what this agreement has done.
“So, fundamentally, this agreement will really mean that global companies, especially the digital platform companies that are making money from our technology and data, will be paying a level of tax across the world, especially in countries where they have users rather than countries where they have headquarters.
“In terms of Africa, it’s a welcome development because before now, those companies would not have paid any tax in Africa because they don’t have their headquarters here. So, it is going to be meaningful in the grand scheme of things,” Eyinla told CNBC Africa during a televised interview.
Just to explain this further, what this agreement means is that tech giants like Twitter, Google and Amazon would no longer just pay taxes to the US Government alone or to the countries where they are headquartered.
Instead, in addition to paying those taxes in the countries where they are domiciled, they would also pay taxes in every country where they have users/customers. It is a somewhat complicated arrangement and Business Insider Africa understands that the US Government is not very happy about it.
But what really matters is that the tax reform will be beneficial to African countries by guaranteeing more revenue generation. Although the likes of Twitter and Facebook, for instance, have millions of users in Africa who help to drive their global operations, they do not currently pay any taxes in any African country.
The most they’ve done is corporate social responsibility which honestly isn’t enough. This is one of the points the Nigerian Government had raised in the course of its face-off with Twitter.
