KPMG CEO weighs in on the implications of G7 tax deal

In a historic move this week, G7 countries reached a groundbreaking agreement on global tax reform. The deal includes backing a global minimum corporate tax of at least 15 per cent, which will have far-reaching implications for companies worldwide with profit margins of at least 10 per cent. Ignatius Sehoole, the CEO of KPMG, shed light on the importance of this initiative, especially for Africa, in an exclusive interview with CNBC Africa. Sehoole highlighted the significance of the G7 corporate tax proposal for African countries. He emphasized that many companies operating in Africa generate profits within the continent but shift them to jurisdictions with significantly lower corporate tax rates, sometimes as low as zero. The stark contrast between the average corporate tax rate in Africa, around 28 percent, and tax havens with single-digit rates like Dubai and Mauritius, creates a substantial loss for African economies. The implementation of a 15 percent minimum global corporate tax rate could level the playing field for African nations, ensuring that profits generated within their borders are adequately taxed. Sehoole also underscored the impact of the tax proposal on tech companies, noting that many of them have evaded direct taxation in Africa due to a lack of physical presence. While tech giants like Google have come under scrutiny for their tax practices, Sehoole pointed out that other multinational corporations engage in profit shifting strategies to lower tax jurisdictions. Companies across various sectors, including mining and pharmaceuticals, employ complex structures to shift profits and minimize tax obligations. The global tax reform seeks to address these practices, although the precise implementation and enforcement remain subjects of ongoing discussion. The conversation delved into the implications for tax haven countries such as Mauritius. Sehoole suggested that some companies might reconsider their presence in jurisdictions primarily chosen for tax benefits. The G7 agreement represents a significant shift towards curbing base erosion and profit shifting (BEPS), building upon previous efforts to ensure a fairer taxation system. Companies that adhered to BEPS-1 regulations may experience a lesser impact compared to those that did not comply. Looking ahead, Sehoole acknowledged the complex nature of international tax reform and emphasized the role of the G20 in extending and refining the G7 agreement. Finance ministers worldwide will play a pivotal role in ensuring comprehensive and effective implementation of the proposed global minimum corporate tax rate. Additionally, the CEO expressed cautious optimism regarding the potential benefits for African economies, as the reforms could lead to increased tax revenues and a more equitable tax landscape. The G7 tax deal marks a significant milestone in the ongoing efforts to address corporate tax avoidance and promote financial transparency on a global scale. While challenges and uncertainties persist, the momentum towards a fairer and more inclusive international tax system is evident. As countries navigate the complexities of tax reform, collaboration and cooperation will be essential to realizing the full potential of these groundbreaking changes.