The Sub-Committee on Tax and Illicit Financial Flows of the Specialized Technical Committee on Finance, Monetary Affairs, Economic Planning and Integration recently concluded its meeting focusing on the design and implementation of the global tax rules in Africa to improve tax collection methods for African countries. The meeting was organized by the African Union, according to a 2 June statement.
Implications related to Pillar Two
The African Tax Administration Forum (ATAF) has already indicated that the Pillar Two system mainly benefits the resident states that are, in most cases, developed countries to the detriment of developing countries. Also, African countries have fewer resident ultimate parent entities leading to limited options for tax collection under Pillar Two. For previous coverage.
Accordingly, the Sub-Committee reiterated its stance that the qualified domestic minimum top-up taxes might support African countries in protecting their tax revenues under Pillar Two. This means that African countries should impose a top-up tax on the low-taxed income of their constituent entities.
Raymond Nazar, Head of the Policy Unit at the Ministry of Finance of the Republic of Ghana and the Chair of Experts of the Sub-Committee, stated that "enacting legislation to protect tax bases could result in a revenue of around USD 220 billion".
Revenue collection from a VAT perspective
The participants also addressed revenue collection from a VAT perspective. Since the consumption of digital goods and services, delivered across borders and intangible in nature has increased in the past years, it is often challenging to apply an appropriate tax collection method. This might require the implementation of simplified VAT regimes. Accordingly, participants of the meeting also adopted recommendations to use the VAT toolkit the ATAF prepared for improved revenue collection on cross-border supplies.
In terms of expected revenue, Nazar stated that "cross-border transactions and e-commerce have the potential to generate approximately USD 40 billion in revenue for the African industry by 2023".