Is the reform of the international tax system penalizing Africa?

While Nigeria and Kenya refuse to sign the agreement on the reform of the international tax system, Abuja explains the reasons for its choice.

A 25% tax on excess profits for companies with a turnover of more than 26 billion dollars and a redistribution of the receipts between the developing countries in which these multinationals have an activity... That, in essence, is one of the tax system reform measures whose agreement was signed in October 2021 by 136 countries – out of 140. Among the countries that have never signed the agreement: Kenya and Nigeria.

It must be said that behind the desire of the Organization for Economic Co-operation and Development (OECD) to bring about a certain “social justice”, criticism has been forthcoming. “After years of intense work and negotiations, this historic package of measures will ensure that large multinational companies pay their fair share of taxes everywhere in the world,” said OECD Secretary General Mathias Cormann.

But in fact, African countries doubt the effectiveness of the measure. Even if tax evasion, in particular on the part of multinationals, causes the continent to lose between 30 and 60 billion dollars each year, the leaders doubt the merits of the reform. Because multinationals generally use subsidiaries, which prevent profits from appearing in the accounts.

Recipes reserved for rich countries?

Tax optimization which is therefore unlikely to change. Worse, according to the Nigerian Minister of Finance, Zainab Shamsuna Ahmed, this reform “serves the interests of rich countries” and “could even harm the tax revenues of developing countries”. Nigeria believes that “the negotiations were not conducted on a level playing field” and that “they favored rich economies and created rules that were too complex for Nigeria to implement effectively”.

For Nigeria, as for Kenya, signing the agreement would amount to no longer “collecting taxes from medium-sized companies, while our own laws allow us to do so”. Remarks contradicted by Mathias Cormann, who recalls, however, that the reform is far from perfect.

The criticisms are indeed quite numerous. Experts wonder why certain sectors — such as the extraction of raw materials, regulated financial services or international maritime transport — are not affected.

Among the most virulent opponents of the reform, the Nobel Prize in economics, Joseph Stiglitz, who asserts that it “does not sufficiently address the concerns of developing and emerging countries”. The NGO Oxfam assures that 60% of the revenue from the minimum tax will indeed be captured by… the G7 countries, when the developing countries will be satisfied with only 3% of the revenue.