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Why Kenya and Nigeria haven’t agreed to a historic global corporate tax deal
Last month, the Organisation for Economic Cooperation and Development (OECD), an intergovernmental economic body, announced that 136 countries and jurisdictions had signed up to an agreement to have global corporations pay a minimum tax rate of 15%. But Kenya, Nigeria, Pakistan, and Sri Lanka had not agreed to the deal, the OECD said.
Now the two African countries have expressed their concerns about the deal, including Kenya saying it may cause it to end its new digital services tax (DST) and both countries raising issues with the deal’s dispute resolution requirements.
The global minimum tax deal covers multinationals with global turnover of at least €20 billion and at least 10% profit before tax. According to Kenya Revenue Authority (KRA) commissioner Terra Saidimu, only 11 companies that fit this requirement operate in Kenya, yet the country currently has 89 companies paying the DST, which targets such businesses.
“You need to know exactly what you are getting for you to forego what you already have,” Saidimu, the commissioner for intelligence and strategic operations, said at a recent tax forum by the agency.
Digitization has called for changes to tax rules
Digitization has created challenges in taxation. As companies operate digitally but not physically in different jurisdictions, some avoid tax and there are questions on how to change international tax rules, which are typically based on “brick-and-mortar” economic environments, to suit the current global economy.
The global minimum tax rate aims to change international tax rules to ensure multinationals pay a fair share of tax wherever they operate. A total of 140 countries and jurisdictions, including 23 from Africa, negotiated to tackle tax avoidance, improve the coherence of international tax rules, ensure a more transparent tax environment and address the tax challenges arising from the digitization of the economy.
The agreement is set to come into effect in 2023. It has two main goals, or pillars: to ensure a fairer distribution of profits and taxing rights among countries and to put a floor on competition over corporate income tax, through the introduction of a global minimum corporate tax rate.
Kenya has a digital services tax
Kenya took initial measures to tax the digital economy by introducing a DST of 1.5% in January of this year.