The US spearheading the move along with G7 member states meeting in London has agreed on new global tax reforms that has been on debate for quite a while. A global minimum tax of at least 15% on multinational companies is coming out of the pipeline. The G7 group also agreed that all companies, irrespective of size, should pay tax where they generate sales, and not just where they have a physical presence.
The move is a welcome one by many tax authorities and some government around the world. Before now, some big companies avoid paying the full tax they are required to pay through cunny strategies. Some companies decide to move to countries where there are lower taxes and establish sales points, while having production points in a different country all in a bid to reduce the amount of tax they pay or in other words, are in search of tax havens.
Ireland for example has been able to attract for itself major companies from around the world by offering a tax rate of 12.5%, thus gaining for itself a high turnover from tax revenues. The new reform means it will be compelled by global business standard to adhere to the new minimum tax rate of 15%.
Africa’s Gain or Loss?
It is reported that Africa loses as much as $100 billion yearly through sharp practices of multinational companies in the region. But an honest look into the matter shows that it is the fault of corrupt African governments through its tax regulators, financial systems and other bodies, who carry out these sharp practices with the MNCs.
Once the new global minimum tax rate becomes effective, the ball is in Africa’s court to build on the template set for it by the G7 in order to boost its share of earnings in the international market.