A Non-Governmental Organization, ActionAid Nigeria (AAN) has applauded Nigerian government for their reluctance to sign onto the Organisation for Economic Co-operation and Development, (OEDC), tax reform deal saying it is not beneficial.
The Organization in a statement signed by its Communications Coordinator, Lola Ayanda, and made available to The Next Edition, expressed displeasure with the negotiation carried out by rich countries for their benefit saying the new tax deal calls for all countries to remove their unilateral measures to tax the digital economy, such as digital services taxes, and replace them with the new rules laid out in pillars 1 and 2.
“Pillar 1 states that if a company has a global turnover of more than 20bn euros and a profit margin of more than 10%, then 20-30% of the profit in excess of 10% of revenue will be allocated to market jurisdictions using a revenue-based allocation key. A multilateral agreement will be developed and opened for signature in 2022 to implement pillar 1, with a view of the multilateral agreement being in force from 2023 onwards. The agreement can then be reviewed earliest 7 years after its implementation, earliest in 2030.
“Pillar 2 sets a global minimum tax rate of at least 15%. It will only apply to companies with a global turnover of more than 750m euros. The minimum tax will work as a sort of ‘top up’ tax that can be charged in the country where multinational company is resident for tax purposes. So, if a company pays 2% corporate income tax in a foreign jurisdiction (such as a ‘source’ country where they have operations or a tax haven that they are shifting profits through), then the jurisdiction has the right to tax the remaining 13% which is 15%-2%=13%.
AAN observed with displeasure that the pillars gives additional taxing rights to the country where a company is headquartered, not where they do business reminding that tax rates are not just for collecting taxes, but also fiscal tools to improve the Domestic Resource Mobilization of any country.
“This forces countries from the global south to struggle for more income to fund their budget deficit. In Nigeria, tax regimes are dependent on the benefits the countries are bound to gain. The gains may be to maximize tax collection or maximize FDI inflow. However, the current global minimum tax of 15% is a threat to both gains.”
“Nigeria set up rules and regulations with the corporate tax at 30% for big and multinational companies. The average Corporate Tax Rate for African countries is 28%. However, the 15% minimum corporate rate is too low and therefore inadequate to stop the “race to the bottom’.
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“The benefits of a proposed minimum tax will be far below what is expected to fund the budget deficit in Nigeria, which will translate to the country’s inability to meet up with the fight against poverty and unemployment.
“For a moderate stand, Nigeria, like most other African countries will need the global minimum tax rate to stand between 25% to 30% above the 21% as initially proposed by the United States.
AAN said it is fundamentally unfair to ask countries in the global south to trade-off their unilateral taxation of the digital economy, in lieu of implementing a deal they were not part of negotiating, coupled with the fact that they will only marginally benefit from it.
Arguing further, the organization also expressed concerns that the fact that this new deal will take effect earliest in 2023 and cannot be reviewed until earliest 2030 is not good enough because revenues are desperately needed in the global south to tackle the challenges posed by the covid19 pandemic and to fight poverty and inequality, hence the need to compel companies operating within the digital economy to pay their fair share of taxes.
As part of their recommendations, “ActionAid Nigeria agrees with the concerns expressed by the African Tax Administration Forum (ATAF) who immediately after the publication of the new deal, stated that ‘political pressure should not be brought on countries to apply these rules.’
“ActionAid Nigeria recognizes and welcomes progressive moves by the Federal Republic of Nigeria to put in place unilateral measures to tax the digital economy through the Finance Act of 2019 and Significant Economic Presence Rule of 2020.
They therefore called on the Nigeria government to maintain these measures until an acceptable and beneficial deal is met advising that Nigeria should also restrain from signing Tax Treaties indiscriminately as they may have same effects as the deal.
“While the new deal is disappointing, it underlines the need for more comprehensive reforms of the international tax practices and treaties. Such reforms are expected to give countries in the global south equal voices in the process of negotiating international tax rules through a possible United Nations Tax Body.
This will also give increased rights to countries in the global south to effectively tax digital companies operating within their jurisdictions.
“The current OECD Tax deal is neither beneficial to the country as a tax rate or FDI attractor. The worst concern about it is that it can only be reviewed in the next seven years, hence, it is better for Nigeria and any developing nations to stand away from ratifying it, the unilateral measures imposed through the Finance Act of 2019 and the Significant Economic Presence Rule of 2020 stand to be more beneficial”.
