Kenya gives ultimatum to Biden’s global taxation plan

U.S. President Joe Biden speaks during a virtual meeting with the Major Economies Forum on Energy and Climate to galvanize efforts to confront the global climate crisis, in the South Court Auditorium of the White House in Washington, DC, on September 17, 2021. (Photo by MANDEL NGAN / AFP)

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

The Kenya Revenue Authority (KRA) wants to know the share of taxes it will get from the U.S.’ push for multinationals to pay most of their taxes in the country where they are headquartered, even if their profits are sourced from developing countries.

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

Countries like Kenya are concerned that the agreement is unlikely to reflect their interests amid the promise that an estimated 125 billion U.S. dollars worth of multinational profits would be available for reallocation to nations.

The agreement seeks to introduce a global minimum tax rate in a bid to end what it dubbed a “race to the bottom” where businesses channel profits through low-tax jurisdictions.

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

The pact has clauses that will force Kenya to drop the digital services tax of 1.5 percent of sales by U.S. tech giants such as Google, Facebook and Amazon.

KRA says it’s in talks with the Paris-based Organisation for Economic Cooperation and Development (OECD), which hosted the talks on the overhaul of taxation rules and the size of compensation, the country will receive for backing the global tax plan.

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 agreement.

“We just wanted to have clarity on how that amount will be arrived at, and how as a country, we are going to get our share of that amount. We want actual numbers so that we compare with what we are already collecting and see whether as a country we are better off or worse,” said KRA Commissioner General Githii Mburu.

“We have invited the OECD to come to Kenya and have engaged in that discussion. Therefore I believe that we are moving towards joining that agreement and being part of the global community in terms of taxation of digital services.”

Nairobi declined to support the deal due to a clause that demands countries scrap the increasingly popular digital services taxes.

This would have forced Kenya to drop its digital services tax, which came into effect at the start of January. It is levied on the sale of e-books, movies, music, games and other digital content and applies to foreign companies.

KRA said earlier that the tax could generate up to 118.3 billion U.S. dollars (Sh13.9 billion) in revenue between 2021 and 2023. Levied on revenue rather than profit, taxes have become an increasingly popular way for countries to balance their budgets.

Facebook and Google have been quick to praise the Group of Seven rich countries’ agreement to create a global minimum 15 percent corporate tax rate. Their approval is the product of the clause demanding countries scrap the digital services taxes.

The minimum tax deal was designed to reduce companies’ incentives to shift profits to low-tax offshore havens and could bring hundreds of billions of dollars into the government coffers of countries like the U.S.

According to OECD, the minimum tax would generate around 150 billion U.S. dollars (Sh17.6 trillion) in additional global tax revenues annually.

All of the Group of 20 major economies, including China and India, which previously had reservations about the proposed overhaul, have backed the US-driven global minimum tax on multinational corporations.

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

“The discussion currently is meant to see where Kenya will get more (revenue), but it’s more likely the country will get more under the global framework,” said Mr Mburu, adding that the KRA is also factoring in the cost of collection for the local tax when weighing its options.

The minimum corporate tax does not require countries to set their rates at the agreed floor but gives others the right to apply a top-up levy to the minimum on companies.

Kenya’s corporate tax stands at 30 percent.

Original article published by Business Daily