South African finance minister Tito Mboweni has 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.”
A new tax
A collection solution to these problems is the introduction of a a global corporate minimum tax, the group said.
“Each of our governments has the right to set its own tax policy. But exercising these sovereign rights together, we can put our economies on a pathway to a sustainable and inclusive recovery more effectively than if we stand alone.
“Our efforts will begin to smooth the rough edges of a global economy that has excluded too many from global prosperity.”
This minimum tax would put a floor on tax competition and ensure corporations pay their fair share of tax.
Some of the proposed changes under the tax include:
- A fairer allocation of taxing rights over the largest and most profitable corporations to replace the uncoordinated unilateral measures that have destabilized the international tax system in recent years.
- The creation of a globally agreed-upon minimum tax that would ensure countries tax corporate income at least at a base level.
- A robust global minimum tax would contribute funds toward investments in infrastructure, health care, child care, education, innovation and other important governmental priorities.
“To pave the way to that goal, we endorse an initial understanding that the global minimum tax rate must be at least 15%, as agreed upon by the Group of Seven countries last week.
“Today, in the absence of a globally agreed-upon minimum tax, the global minimum tax is effectively zero. Given the ambition of the discussions thus far, we are confident that the rate can ultimately be pushed higher than 15% .”