A tax consultant Fred Awuttey says the Nigerian Federal Government’s reluctance to sign onto the Organisation for Economic Co-operation and Development, (OECD) tax deal is justifiable.
According to him, the deal although is targeted to get the digital companies to pay taxes in market jurisdictions that the digital companies do their businesses, it could go along way to negatively affect revenue mobilises of developing countries in its current form.
Outlining his reasons for supporting the Federal Government’s unwillingness to sign the deal with OEDC, ‘when you look at global taxation issues, especially digital taxation, most tax jurisdictions and tax laws are framed within the context fiscal culture. Meaning that the digital company may not be able to pay tax in the jurisdiction in which they operate from’. Mr. Awutey said
He was speaking to Asaase Business News on the Back of earlier Reports that ActionAid Nigeria had also commended the Nigerian government’s reluctance to sign onto the tax deal.
A statement signed by the country director of the organisation, Ene Obi, said the OECD recognizes the need to better tax the digital economy and the fact that big tech companies need to be making bigger tax contributions. ‘So far, about 132 countries have signed onto the deal, making it a multilateral agreement’. Mr. Awuttey said
He added that once a state signs onto the deal it is supposed to rectify its domestic tax laws.
‘But the problem with this is that most of the multinational companies operate from different states so imposing a 15 percent minimum corporate tax with stability clause of 7 years, compared to the average tax rate in African countries for instance which is about 28%, that will mean that it will facilitate the race to the bottom for corporate taxes. This will not augur well for revenue mobilisation in African and other developing countries who are in dying need to close the revenue gap exacerbated by the Covid 19 pandemic.’ He added
The tax consultant suggested that the way forward is for the committee of experts on tax matters from the United Nations and the United Nations must assist to negotiate a separate rate for developing countries especially in Africa. He further reiterated that the focus should also be placed on how much tax base to be allocated to Africa countries from the profit that the multinational makes from the market jurisdiction operate from rather than the tax rate.
‘Nigeria is not the only country kicking against this. Some other countries including the developed countries have resisted it. If you look at the plan of the United States, President Biden was of the view that the tax rate should be about 21% but later on, the agreement was on 15% so what will happen is that, the 15 % will force countries to reduce corporate tax rates to about 15% that will create a very huge gap.’ Mr Awuttey stressed.
Fred Awuttey is International Tax Advisor and International Tax affiliate member of Chartered Institute of Taxation UK and also a tax lead at the EM Tax Advisors.