Africa Moves To Protect Its Interests In Global Tax Rules, Stem Illicit Financial Flows

Africa moves to protect its interests in the global tax rules to increase revenues and stem illicit financial flows, according to African Union(AU).

The African Union has issued a press release after concluding a three-day meeting of the Specialized Technical Committee on Finance, Monetary Affairs, Economic Planning and Integration- Sub-Committee on Tax and Illicit Financial Flows.

The meeting under the theme “Tax in Africa: contemporary issues affecting the continent” and adopted recommendations that ensure African interests are protected in the design and implementation of the global tax rules, and ways to improve domestic resource mobilization for Africa’s development.

The meeting discussed 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, it said.

It also adopted recommendations to use the VAT toolkit by African Tax Administration Forum (ATAF) for improved revenue collection on cross-border supplies; and identified areas where future legislative action or coordination would benefit Member States,

The African Union and relevant partners, in regard to addressing the issue of wasteful tax incentives, stemming of illicit financial flows respectively, and improving continental domestic resource mobilization necessary for the development of the continent, it was stated.

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 in nature, has brought with it challenges on the difficulty in establishing the appropriate jurisdiction for tax collection, as well as determining the value for taxation purposes.These developments have had a negative impact on Africa’s ability to mobilize revenues.

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 mobilization.

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 percent global minimum tax, according to the new rules.

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.

African Union Commissioner for Economic development, Trade, Tourism, Industry and Minerals, Albert Muchang stated that to effectively operationalize 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.

He further said 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 percent of GDP to 40 percent. By incorporating the views of existing African structures, the operationalization process of the Convention will ensure accountability and full ownership by the Member States,” he added.

United Nations Economic Commission for Africa (ECA) Acting Executive Secretary, Antonio Pedro underscored the need for a complete overhaul of the global financial system, the creation of an operational debt relief and restructuring framework, strengthened domestic resource mobilization as well as an inclusive international tax system.

“Global financial architecture reforms need to be coupled with an international tax framework that can ensure the taxing rights of African countries in an inclusive and equitable manner. As such, it is critical to formulate an African Position on the UN Tax Convention,” he added.

Source: Ethiopian News Agency