What are the practical implications of the global minimum tax deal?

A global minimum tax deal is on the horizon as the world edges closer to implementing the proposed framework by 2024. The aim of the deal is to prevent companies from exploiting the tax system by moving profits to low-tax jurisdictions. While 137 countries or 90% of the global economy have supported the tax deal, only 23 countries in Africa, less than half of the continent, have signed up for it. This has sparked a debate on the practical implications of the global minimum tax deal for Africa, with concerns raised about potential revenue losses, taxing rights, and impacts on tech companies. Michael Hewson, Founder of Graphene Economics, shared insights on the debate during a recent interview with CNBC Africa. He highlighted the importance of the discussion on the global minimum tax deal, emphasizing the need to address unfair tax competition. Hewson noted the limited contribution from African countries, with organizations like the Africa Tax Administration Forum being among the active voices providing views and contributions. However, major players like Kenya and Nigeria have raised concerns about the implications of the deal on their potential revenue and their ability to tax technology companies. Hewson pointed out that these countries, along with South Africa, have significant reservations about the deal, mainly due to the requirement to give up certain taxing rights, particularly related to digital services taxes. One of the key pillars of the OECD framework for the global tax deal focuses on reallocation of taxing rights for the world's biggest and most profitable companies. Companies with consolidated revenue above 20 billion euros and profitability levels above 10% would see portions of their profits reallocated. The second pillar, the global minimum tax deal, mandates multinationals with revenue exceeding 715 million euros to pay at least 15% tax in each country of operation. Hewson pointed out the challenge for African countries as very few companies headquartered in the region meet the revenue criteria, leading to concerns about the benefits versus the costs of signing the deal. He highlighted the contentious issue of giving up digital services taxes in exchange for potential gains from the global tax deal, a trade-off that countries like Kenya and Nigeria are reluctant to make. The lack of publicly available impact assessments on the global tax deal for African countries has further complicated the debate. Hewson stressed the importance of detailed assessments to accurately measure the potential effects of the two pillars of the tax deal on developing nations. Despite the complexities and challenges, Hewson expressed confidence in the eventual implementation of the global minimum tax deal, given the support it has garnered from a vast number of countries. He highlighted the transformative nature of the deal, aiming to create taxing rights for market jurisdictions and increase the level of tax paid across countries to a minimum of 15%. In conclusion, while uncertainties remain about the exact form of implementation and the impact on African nations, the global minimum tax deal appears set to reshape the international tax landscape in the coming years, with implications for both developed and developing economies.