Ghana is likely to lose millions of dollars to tax havens, following the G7 global minimum corporate tax rate pegged at 15 percent.
Ghana’s major tax havens, in particular, Switzerland, will continue benefiting from tax evasion as multinational corporations in Ghana, especially in the extractives and financial services sector.
The world’s most powerful economies- G7 countries, on June 5, 2021, fixed the global minimum corporate tax rate at just 15 percent, even far below President Joe Biden’s proposed 21 percent global minimum corporate tax.
Tragically, Ghana will continue to lose as much as US$157, 890, 653 each year to tax havens, as the corporate tax rates of Switzerland- 14.84% is similar to the soft rate announced by the G7 countries. Switzerland, for instance, is ranked 5th in the recent rankings of tax havens globally.
According to KPMG, Ghana’s corporate tax rate is 25 percent. Thus, with a 10% reduction on the tax rate to just 15%, this presents a win for multinational corporations.
Technically, the rates vary, as companies that are listed pay 25 percent, unlisted public or private companies on the other hand pay 35 percent. For banks, insurance and other financial institutions the tax rate is pegged at 37.5% if listed and 40% if not listed.
By this breakdown in tax rates, the country’s loss deepens as more revenues entitled to the country will be lost, thus, restricting the country’s already strained tax-to-GDP ratio.
With already a lot at stake, the chances that Ghana will have its fair share of taxes from multinational corporations tends to be unlikely. This is typical of nurturing a race to the bottom scenario on corporate tax for the country and is jeopardizing to the country’s progress, especially towards addressing the post-Covid recovery.
Low global minimum tax rate threatens tax revenue generation
Even so, Ghana’s progress towards tackling illicit financial flows has been very slow, and very daunting. The tax revenues lost in that space are very huge. Experts indicate that Ghana loses as much as US$2 billion in illicit trade of gold, for example.
Therefore, with a fair tax rate absent, Ghana risks losing out on the potential of recouping large tax revenues which it could leverage to finance development projects and reduce its over reliance on borrowing.
The Executive Director of Oxfam International, Gabriela Bucher expressed similar sentiments as highlighted below:
“It’s absurd for the G7 to claim it is ‘overhauling’ a broken global tax system by setting up a global minimum corporate tax rate that is similar to the soft rates charged by tax havens like Ireland, Switzerland and Singapore. They are setting the bar so low that companies can just step over it.
“This is not a fair deal. As it stands, this top-down tax pact brokered by just seven countries, ahead of the global deal expected by this summer, will overwhelmingly benefit rich countries and increase inequality.
“Billions of dollars in revenues lost to tax havens each year would flow to wealthy countries where most of the large multinationals like Amazon and Pfizer are headquartered ―regardless if their sales and profits are actually made in developing nations. The G7 can’t expect the majority of the world’s countries to accept crumbs from its table.”
However, the G20 countries are yet to reach a political agreement on the global corporate minimum tax rate in July 2021. Whether the strings for a fairer tax system will move towards the interest of developing economies is yet be unveiled, but chances look slim.
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