FINANCE, Economic Development and Investment Promotion minister Mthuli Ncube has said he will enact rules to enable Zimbabwe to collect domestic minimum top-up tax (DMTT) with effect from January 1, 2024.
DMTT is part of the Global Anti-Base Erosion (GloBE) rules which aim to ensure that all the global profits of large multinational entities are taxed at a minimum corporate income tax rate of 15%.
Under the GloBE rules, where a tax incentive results in an effective rate of less than 15%, another tax jurisdiction, usually where the multinational is headquartered, will collect the difference between the effective tax under the tax incentive and the minimum effective rate of 15% (the top-up tax).
For revenue-starved economies such as Zimbabwe, the DMTT would not have come at a better time than now when there is an outcry over new tax measures deemed anti-poor.
According to the African Tax Administration Forum, over 50 countries have announced plans to enact GloBE rules by 2024.
It urged African countries to immediately enact DMTT rules to protect themselves from giving away taxing rights to developed countries on top-up tax arising from their own tax incentives.
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Several developing countries have rolled out corporate income tax incentives to lure multinationals attracts other foreign investors.
Multinationals stand accused of fleecing developing countries by “cooking” figures so that they reflect losses instead of profits and avoid paying taxes. They are aided by corrupt public officials that are only concerned about lining their pockets.
The new rules behove tax authorities to undergo rigorous training to net-in the multinational tax dodgers.
It is estimated that DMTT will unlock over US$200 billion in tax revenue for mainly developing countries.
We implore Zimbabwean authorities to be mindful of the GloBE rules in their efforts to attract investors under the “Zimbabwe is open for business” drive. There are multinationals that will approach authorities for incentives to be able to invest in their destinations.
Giving them such incentives to the extent that their corporate income tax would be less than 15% would be akin to fattening a neighbour’s cow as other jurisdictions will capitalise on the incentives.
The GloBE rules also come amid concerns that developing countries are not doing cost-benefit analyses of the tax incentives. This comes as some multinationals that were given tax incentives for 10 years would close after nine years or ask for an extension.
The absence of a cost-benefit analysis results in a high tax incentive redundancy, thus, giving unnecessary incentives, thereby depriving national coffers of the much-needed tax revenue.
For example, an International Monetary Fund survey in Burundi showed that 77% of foreign investors in the East African nation responded that the incentives they received were redundant. This means that at least 77% of tax incentives were wholly unnecessary, thus depriving the country of the much needed revenue.
Thus, the GloBE rules could not have come at a better time for countries such as Zimbabwe to overhaul their incentive scheme and unlock more tax revenue rather than burdening overtaxed individuals and companies. Zimbabwe has no choice except to comply with the GloBE rules.