Africa moves to protect its interests in the global tax rules

A map of Africa

By Khulile Thwala

The African Union (AU) has concluded a meeting of the Specialised Technical Committee on Finance, Monetary Affairs, Economic Planning and Integration- Sub-Committee on Tax and Illicit Financial Flows.

This meeting was aimed at moving to protect Africa’s interests in the global tax rules to increase revenues and stem illicit financial flows.

Under the theme ‘Tax in Africa: contemporary issues affecting the continent’ the technical committee adopted recommendations that ensure African interests are protected in the design and implementation of the global tax rules and ways to improve domestic resource mobilisation for Africa’s development.

The meeting interrogated key issues on the tax regimes in Africa and made recommendations to guide possible reviews and reforms of national tax policies to protect Member States’ tax bases.

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Discussions centred on parameters of the African position on the promotion of inclusive and effective tax cooperation at the United Nations and on the consideration of the enactment of a Domestic Minimum Top-up tax for tax base protection ahead of the incoming global tax rules.

The technical team further adopted recommendations to use the VAT toolkit by ATAF for improved revenue collection on cross-border supplies; and identify areas where future legislative action or coordination would benefit Member States, the African Union and relevant partners, regarding addressing the issue of wasteful tax incentives, stemming of Illicit Financial Flows respectively, and improving continental domestic resource mobilisation necessary for the development of the continent.

According to the African Union, the digital economy has experienced unprecedented growth over the past few decades, transforming the global economic landscape and reshaping the way businesses and individuals interact. This phenomenon has been driven by rapid advancements in technology, widespread internet access, and the increasing penetration of smartphones and other digital devices.

However, this increased consumption of digital goods and services, delivered across borders and intangible, has brought with it challenges the difficulty in establishing the appropriate jurisdiction for tax collection, as well as determining the value for taxation purposes.

These developments are said to have hurt Africa’s ability to mobilise revenues.

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“Africa is therefore looking to actively engage in the global tax debate at the United Nations on International tax cooperation, and the opportunities it presents for increased domestic resource mobilisation. Further, the new global tax rules will have an impact on existing national tax incentive policies and present an opportunity for African countries to protect themselves from ceding their taxing rights to countries where multinationals are resident on existing tax incentives lower than the 15 per cent global minimum tax, according to the new rules,” states the AU.

This requires African countries to enact domestic minimum top-up tax legislation to tap into this revenue. Similarly, revenue collection from e-commerce goods and services requires the implementation of simplified VAT regimes.

Albert Muchanga, African Union Commissioner for Economic Development, Trade, Tourism, Industry and Minerals, noted that to effectively operationalise the UN Convention on International Tax Cooperation, the process must be inclusive in incorporating the views of existing African structures and leverage the work of the UN Committee of Experts on International Tax Cooperation.

Further, the Member State-led intergovernmental body ought to have a well-resourced technical structure to focus on specific pain points in developing countries not addressed by previous initiatives to address gaps in tax cooperation.

“At the continent level, the core issue is how Africa can develop tax administrations to increase investments from the current level of 20 per cent of GDP to 40 per cent. By incorporating the views of existing African structures, the operationalization process of the Convention will ensure accountability and full ownership by the Member States.”

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Raymond Nazar, Head of the Policy Unit at the Ministry of Finance of the Republic of Ghana and the Chair of Experts of the Sub-Committee on Tax and Illicit Financial Flows called for improved tax collection systems supported by trade and investment to shield the continent from the vulnerabilities to external shocks and dependency.

“Estimates show that enacting legislation to protect tax bases from losses due to tax incentives could result in an additional revenue of around US$220 billion (E4.2 trillion) while cross-border transactions and e-commerce have the potential to generate approximately US$40 billion in revenue for the African industry by 2023”.

The Domestic resource mobilisation, he noted, is critical as the continent builds back economies from the Impact of; the COVID-19 pandemic, the Russia- Ukraine crisis, climate change, drought and food insecurity.

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