How will Biden's proposed global corporate tax affect Africa?

Amidst the global discussions on reforming the tax system for multinational corporations, Africa finds itself at the center of a debate over US President Joe Biden's proposed shift in corporate taxation. The recent G7 decision to set the global minimum corporate tax rate at 15% has raised concerns about its impact on African countries, particularly in addressing the challenges of base erosion and profit shifting. Carlos Lopes, a Professor at the Mandela School of the University of Cape Town, shared his insights on the implications of this tax reform for Africa in an interview with CNBC Africa's Julius Bizimungu. Lopes highlighted the historical context of the global tax system and the need for reform to align with the United Nations' Agenda 2030 goals. He pointed out that past proposals for tax reform, including the OECD's suggestion of a 12.5% tax rate for multinational corporations, were not fully realized due to opposition from wealthier nations like the US. However, Biden's campaign pledge to increase the tax rate to 28% raised hopes for significant changes in corporate taxation. Yet, the eventual decision to set the rate at 15% falls short of the expectations, resembling the existing practices in tax havens like Switzerland and Singapore. The core issue raised by Lopes is the challenge posed by base erosion and profit shifting, where multinational companies manipulate their profits to minimize tax liabilities, disproportionately affecting African economies. The current global tax framework fails to consider production and job creation in attributing taxable activities, leading to revenue losses for African countries. Moreover, the introduction of the concept of 'excessive tax' complicates the tax formula, further undermining Africa's position in the tax reform discussions. In terms of African countries' engagement with Biden's proposed tax reform, Lopes expressed skepticism about their willingness to endorse the 15% global minimum tax rate. He noted that the Biden administration had already diluted its initial proposal from 28% to 15%, aligning more closely with existing tax practices. This trend towards lower taxation levels and limited coverage of multinational corporations diminishes the potential benefits for African nations, especially in combating base erosion and profit shifting practices. Looking ahead, Lopes highlighted the upcoming G20 discussions as a crucial platform for developing countries to voice their concerns and push for a fairer global tax system. While Africa's representation in the G20 is limited, there is optimism that other developing nations will join South Africa in challenging the G7's tax proposal. The need for a more inclusive and equitable approach to tax reform, which considers the unique challenges faced by African economies, remains a key priority. However, Lopes also pointed out the systemic issues within the global financial system that marginalize Africa's voice in such critical discussions. The lack of representation and influence in decision-making processes underscores the challenges African countries face in advocating for their interests and priorities. Despite the efforts to address base erosion and profit shifting, the underlying disparities in the international tax architecture continue to hinder Africa's ability to shape the global tax agenda. In conclusion, Africa's concerns over Biden's proposed global corporate tax reform reflect the broader challenges of inclusivity and fairness in the international tax system. As discussions progress within the G20 and other forums, the importance of amplifying African voices and addressing the specific needs of the continent in tax reform cannot be understated. The road to a more equitable global tax framework remains a complex journey, where balancing interests and priorities at both the global and local levels is essential for achieving meaningful reform.