South Africa has joined 130 other countries in calls to introduce a global tax.
In talks held by the Organization for Economic Cooperation and Development (OECD) last week, the countries agreed to a plan to set a minimum corporate tax rate and establish a new regime for sharing the taxes imposed on the profits of multinational firms.
The overhaul is aimed at helping countries share the spoils from multinational firms like Facebook and Alphabet’s Google, with implementation targeted for 2023, Bloomberg reported.
The rules would curtail tax avoidance by making global enterprises pay an effective rate of at least 15%.
They could also give some smaller countries room to collect more from foreign firms by taxing business activity within their borders, though other small nations could see tax revenue fall.
Mboweni’s seal of approval
In June, South African finance minister Tito Mboweni joined prominent global figures, including US treasury secretary Janet Yellen and German vice-chancellor Olaf Scholz, in the call to introduce a global minimum tax rate of 15%.
In a letter published in the Washington Post, the group said that the tax is necessary to help fight global inequality.
It cited the fact that wealthy people and corporations are doing much better than those at the bottom of the economic ladder, and that governments desperately need revenue to rebuild their economies and make investments to support small businesses, workers and families in need.
“For too long, revenue has been drawn too heavily from workers, whose incomes are easy to report and calculate,” the group said.
“Capital income is more difficult to tax because capital is mobile and income more susceptible to sophisticated accounting games.”
Using these tricks, corporations’ capital income too often finds its way to low-tax jurisdictions as the world’s most profitable companies adroitly reduce their tax burdens, the group said.
“Beyond revenue loss, governments live in fear of overtaxing corporations, lest those companies move their operations — and jobs — offshore.
“The dynamic that has arisen in the past half-century is, in the classic economic sense, a race to the bottom with respect to corporate tax rates.”