Government to introduce global minimum corporate tax

Over the next few years, government plans to implement a global minimum corporate tax to limit the negative effects of tax competition.

“Multinational corporations with annual revenue exceeding €750 million will be subject to an effective tax rate of at least 15%, regardless of where their profits are generated. The proposed reform is expected to yield an additional R8 billion in corporate tax revenue in 2026/27,” Finance Minister Enoch Godongwana said on Wednesday in Parliament.

Delivering the 2024 National Budget Speech, Godongwana encouraged interested parties to provide comments on the draft Global Minimum Tax Bill published today.

The draft Global Minimum Tax Bill aims to limit the race to the bottom of effective corporate tax rates for large multinationals, with countries competing to attract income by offering low tax rates and tax incentives.

“Implementing the minimum tax in South Africa will bolster the corporate tax base. South Africa helped develop tax rules to address base erosion and tax challenges arising from the digitalisation of the economy as a member of the Steering Group of the OECD [Organisation for Economic Co-operation and Development] /G20 Inclusive Framework on Base Erosion and Profit Shifting.

“These rules are designed to limit the channels that multinationals use to shift profits from high- to low-tax countries. The 2023 Budget Review outlined the two pillars of this framework, which were endorsed by more than 135 countries in 2021. The first focuses on the digital economy and the coherent tax treatment of multinationals,” the 2024 Budget Review said.

The framework will be implemented through a multilateral convention to ensure that the biggest and most profitable multinationals reallocate part of their profit to all countries where they sell their products and provide their services.

“The second pillar introduces the global minimum tax. It ensures that any multinational with annual revenue exceeding €750 million will be subject to an effective tax rate of at least 15 %, regardless of where its profits are located. Government proposes to introduce two measures to effect this change – an income inclusion rule and a domestic minimum top up tax – for qualifying multinationals from 1 January 2024.

“The income inclusion rule will enable South Africa to apply a top-up tax on profits reported by qualifying South African multinationals operating in other countries with effective tax rates below 15%.

“The domestic minimum top-up tax will enable SARS [South African Revenue Service] to collect a top-up tax for qualifying multinationals paying an effective tax rate of less than 15 % in South Africa,” National Treasury said.

The Explanatory Memorandum and Draft Global Minimum Tax Bill will contain more details on these proposals as well as a request for public input.

Broadening the tax base

“Our long-term tax policy strategy remains focused on broadening the tax base while improving tax compliance and administrative efficiency. Visible progress has been made in rebuilding and modernising the South African Revenue Service.

“The tax authority has expanded the tax register, improved debt collections and reduced fraudulent refunds and trade valuations. This has led to improvements in revenue collection,” the Minister said.

To address the high levels of illicit tobacco, SARS is deploying CCTV and related technologies at licensed tobacco manufacturers.

“Investigations and prosecutions have resulted in R10 billion in additional assessments from the key players in the illicit gold and tobacco industry, of which over R4 billion from key players in the illicit gold and tobacco industry.

“These and other efforts have assisted with the improvement in revenue. Our bigger challenge, as I have stated earlier, is that our pie is not growing fast enough and this limits our ability to generate sufficient revenues to distribute among our priority areas,” Godongwana said.