Tax Base Erosion and Profit Shifting (BEPS)

The escalating concentration of global extreme poverty is particularly pronounced in Africa, where the continent presently accounts for 55% of the total worldwide poverty. Reports indicate that these numbers are expected to rise due to the enduring impacts of climate change, the COVID-19 pandemic, and the conflict in Ukraine. As we hit the six-year mark before the designated milestone for achieving the Sustainable Development Goals (SDGs), it is apparent that African nations are still notably behind in making substantial strides toward the specific targets outlined in the SDG Agenda. Expanding upon the United Nations Millennium Development Goals (MDGs), which concluded in 2015, the SDGs underscore the commitment to addressing a broad spectrum of global challenges. The SDG Agenda tackles 17 pivotal development challenges, spanning areas such as poverty, health, gender equality, crucial aspects of economic growth, urgent global warming issues, social justice, and the promotion of peaceful and inclusive societies. Globally, there is a recognition that countries bear the primary responsibility for addressing systemic issues leading to revenue loss, and global cooperation is essential to supporting national efforts in achieving the SDGs. Within the African context, there have been calls to African leaders to address structural barriers impeding domestic resource mobilization as a key to the successful implementation of development projects aimed at enhancing the lives of African citizens. This is viewed as a sustainable solution to confront the severe and multidimensional nature of poverty in African nations, requiring concerted efforts from leaders to reshape policies that currently facilitate capital outflows.

This commentary highlights the prospects and challenges of a UN framework tax convention for developing economies and makes recommendations for mitigating risks. It argues that while the proposed UN framework tax convention may provide a broader forum for increased conversations between developed and developing countries on international cooperation in tax matters, it may not be the magic wand of equal participation in global tax policy formulation hoped for by developing countries. Nevertheless, the adoption of the UN tax resolution is indeed a very significant development in the international tax law and policy space that will form the basis of very engaging conversations in the coming years.

It is imperative that a strategy and approach be undertaken to address MNE business models and challenges regarding taxing the digitalized economy, and that legislative measures are enacted to preserve or expand Africa’s tax base. Overall, the potential gains from Digital Sales Tax are significant, as inclusion of digital services tax, may subsequently increase revenue that may be utilised for developing States, particularly at a time of high State expenditure to alleviate the economic and social impact of Covid-19. You could include some benefits from countries that have imposed unilateral taxation legislation highlighted above to showcase the potential gains.

Illicit Financial Flows (IFFs) are one of several impediments to achieving sustainable development in developing countries across the world. While there is no globally accepted definition of IFFs, there is global acceptance that IFFs undermine the efforts of developing countries to generate domestic revenues to finance their national development agendas. According to the United Nations (UN), developing countries face an estimated annual funding gap of $2.5 trillion to deliver on Agenda 2030. In Africa, the continent loses approximately $100 billion annually through IFFs that are generated in and moved from the continent to tax havens.