Kenya changes tune on 15% minimum global tax scheme

Kenya changes tune on 15% minimum global tax scheme

The Kenyan government has changed its tune to join 134 countries that have already subscribed to a 15 percent global corporate minimum tax scheme.

Kenya dropped plans to back up the scheme that is being driven by the United States President Joe Biden who wants multinational companies to support the tax deal.

Kenya Revenue Authority‘s (KRA) reluctance to join other jurisdictions was as a result of clauses in the agreement which Kenya has been uncomfortable with to compel Kenya to drop the digital services levy of 1.5 percent of gross sales by U.S leading tech firms such as Google, Facebook and Amazon.

The taxman now wants to understand the share of taxes Kenya will get from the U.S.’ push for multinationals to pay most of their taxes.

“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.

Besides Kenya, other out of the 140 members of Paris-based Organisation for Economic Cooperation and Development (OECD) countries that have yet to join the agreement are Algeria, Nigeria, Pakistan, and Sri Lanka.

The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) agreement is based on the OECD’s two-pillar approach that aims to ensure multinationals pay their fair share of tax in the countries they operate in.

Under pillar one, multinationals with global sales above Ksh.2.5 trillion (€20 billion) and profitability above 10 percent will be covered by the new rules, with 25 percent of profit above the 10 percent threshold to be reallocated to market jurisdictions.

Meanwhile, under pillar two, the new minimum tax rate will apply to companies with revenue above Ksh.96 billion (€750 million).

The agreement states that both pillars combined could increase global tax income revenue by Ksh.13.8 trillion to Ksh.16.6 trillion ($125-$150 billion) annually.

“This is a major victory for effective and balanced multilateralism. It is a far-reaching agreement which ensures our international tax system is fit for purpose in a digitalised and globalised world economy. We must now work swiftly and diligently to ensure the effective implementation of this major reform,” said former Australian Minister for Finance and now OECD Secretary-General Mathias Cormann.

United States Treasury Secretary Janet Yellen implored countroes to subscribe to the scheme days after the Biden administration announced it planned to raise corporate taxes to finance a massive Ksh.217.79 trillion ($2 trillion) infrastructure plan for President Biden.

President Biden has defended his proposal to raise corporate taxes to help pay for his infrastructure spending plans, saying he was not worried the hike would harm the economy and that there was no evidence it would drive business abroad.

He took aim at the 50 or 51 corporations on the Fortune 500 list that paid no taxes at all for three years in the U.S, saying it was time for them to pay their share.

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Lawrence Baraza is a prolific writer with competencies in Digital Media, Print, and Broadcast. Baraza is also a Communication Practitioner currently spearheading Digital content on Metropol TV's Digital Desk.

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