Kenya gives ultimatum to Biden’s global tax plan

US President Joe Biden speaks during a virtual meeting with the Major Economies Forum on Energy and Climate to Galvanize Efforts to Address the Global Climate Crisis, in the South Court Auditorium of the White House in Washington, DC, September 17, 2021. (Photo by MANDEL NGAN / AFP)

Kenya is seeking an explicit revenue-sharing deal before backing US President Joe Biden’s push for a global minimum tax rate on multinational corporations.

The Kenya Revenue Authority (KRA) wants to know how much tax it will get from pressure from the United States to make multinationals pay most of their taxes in the country where they are headquartered, even if their profits come from other countries. in development.

The call for an explicit revenue-sharing deal comes as Kenya pushes to join the 134 countries that have backed the deal.

Countries like Kenya fear the deal is unlikely to reflect their interests amid the promise that around US$125 billion in multinational profits would be available to reallocate to nations.

The deal aims to introduce a global minimum tax rate in a bid to end what he called a “race to the bottom” where companies funnel profits through low-tax jurisdictions.

It will tax 100 of the world’s largest corporations on profits made in countries where they have little or no physical presence but derive substantial revenue.

The pact contains clauses that will require Kenya to remove the 1.5% Digital Services Tax from the sales of US tech giants such as Google, Facebook and Amazon.

Kenya, Nigeria and Algeria are among the nine economies that have yet to back the deal.

Major African economies, including Egypt, South Africa and Morocco, are among the 134 countries that have backed the deal.

“We just wanted to have clarity on how this amount will be achieved and how as a country we are going to get our share of this amount. We want real numbers in order to compare with what we are already collecting and see if as a country we are doing better or worse,” said KRA Commissioner General Githii Mburu.

“We invited the OECD to come to Kenya and we engaged in this discussion. Therefore, I think we are moving towards joining this agreement and being part of the global community in terms of taxing digital services. »

Nairobi declined to back the deal because of a clause requiring countries to scrap increasingly popular taxes on digital services.

This would have forced Kenya to scrap its digital services tax, which came into force in early January. It is levied on the sale of e-books, movies, music, games and other digital content and applies to foreign businesses.

The KRA earlier said the tax could generate up to US$118.3 billion (13.9 billion shillings) in revenue between 2021 and 2023. Levied on revenue rather than profits, the taxes have become an increasingly popular way for countries to balance their budgets.

Facebook and Google were quick to praise the agreement of the Group of Seven rich countries to create a minimum global corporate tax rate of 15%. Their approval is the product of the clause requiring countries to remove taxes on digital services.

The minimum tax agreement was designed to reduce incentives for companies to shift profits to low-tax tax havens and could return hundreds of billions of dollars to government coffers in countries like the United States.

According to the OECD, the minimum tax would generate about US$150 billion (17.6 trillion shillings) in additional global tax revenue each year.

All countries in the Group of 20 major economies, including China and India, which previously had reservations about the proposed overhaul, supported the global minimum tax imposed by the United States on multinational corporations.

Mr. Mburu added that the KRA will continue to collect the digital services tax.

“The discussion is currently to see where Kenya will get more (revenue), but it is more likely that the country will get more in the global framework,” Mburu said, adding that the KRA also takes into account the cost. local tax collection when evaluating your options.

The corporate minimum tax does not require countries to set their rates at the agreed floor, but gives others the right to levy an additional corporate minimum levy.

Corporation tax in Kenya is 30%.

Original article published by Business Daily


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