The African Tax Administration Forum (ATAF) is developing a proposal for an African minimum domestic tax to address losses to tax incentives, which is put at 3.5 percent of Gross Domestic Product (GDP).
This was disclosed by Logan Wort, ATAF executive secretary, during the ATAF 7th general assembly with the theme, ‘Rethinking Revenue Strategies: The Human Face of Taxation’, held in Lagos Tuesday.
He noted that tax incentives are responsible for a lot of leakages and a major cause of illicit financial flows out of Africa. This he said is put at 3.5 percent of GDP that Africa loses in tax incentives.
In December 2021, the Inclusive Framework published the Global Anti-Base Erosion (GLoBE) model rules.
The GLoBE rules comprised of two interlocking domestic rules, including an Income Inclusion Rule (IIR), which imposes top-up tax on a parent entity in respect of the low taxes income of a constituent entity, and an Undertaxed Payment Rule (UTPR).
Under the 2021 global tax agreement, the Pillar Two global minimum tax would aim to ensure large multinationals are paying at least a 15 percent tax rate around the world, by allowing countries to top-up a company’s taxes when it is not meeting the minimum rate in another jurisdiction.
“Should that come into play, all companies will have to pay a minimum of 15 per cent. So, when an African country gives a tax incentive of zero to a company, that company will have to pay 15 percent of tax to someone in the world. So, we are now being discouraged from doing these tax incentives”, he said.
Wort said, “We are proposing to the AU that we introduce on the continent a minimum domestic tax so that nobody pays zero tax. Those are the two ways in which we think the issue of tax incentives will be dealt with.”
On incentives to businesses, Muhammad Nami, executive chairman, of Federal Inland Revenue Services (FIRS), said it is not as if incentives are bad but tax waivers are what exactly the issue is.
Read also: The implications of global minimum tax on company tax revenue of developing countries
“The global best practice today is not for us in Africa to continue to give tax waivers to companies because when you give this waiver to them here, they go back somewhere else to pay the taxes and we follow those same people to go and collect loans for purposes of funding our budgetary requirements,” he said.
Furthermore, he said, “the best practice today is for us to mobilise these resources from these taxpayers and apply it to build infrastructure where necessary, to grant loans to SMEs where necessary so that we’re able to grow the economy instead of taking loans.”
Responding to questions on the informal sector, Ayodele Subair, executive chairman of the Lagos State Internal Revenue Service, said Lagos State recognises there is a very viral informal sector representing about 60 per cent of the working population and takes the numbers very seriously.
“Our approach has been to leverage technology. With technology, we are going to be able to enumerate much faster and we have a lot of field officers who go into the markets. We are talking to the associations, we are talking to the unions in order to bring them into the tax net,” he said.
Wort said African countries have more than 3000 double taxation agreements and many tax exchange of information agreements. Part of the problem for Africa is that very few of these agreements are with African countries and with each other.
