On 31 March this year, the IEJ with our partners at the Alternative Information Development Centre (AIDC) submitted comments on South Africa’s Draft Global Minimum Tax Bill to the South African Revenue Service and National Treasury. The IEJ and AIDC were supported in this submission by Tax Justice Network Africa (TJNA) and the Stop The Bleeding campaign.
The Global Minimum Tax has been a significant focus in international tax policy, particularly for countries like South Africa that seek to protect their tax bases from erosion. This submission on the Draft Global Minimum Tax Bill offers critical insights and recommendations for enhancing the Bill’s effectiveness.
Approach to Implementation
The Draft Bill implements the OECD GloBE rules “by reference,” meaning that updates to the GloBE rules will automatically apply in South Africa without requiring legislative amendments. While this approach ensures consistency, it raises concerns about public oversight. The absence of a legislative process for future updates could result in substantial changes to South African tax policy, bypassing public and parliamentary scrutiny. To address this, the submission proposes incorporating the GloBE rules directly into the Bill or introducing a transparency mechanism to keep the Finance Standing Committee and the public informed of any updates.
Qualifying Domestic Minimum Top-Up Tax (QDMTT)
The QDMTT is essential for ensuring multinational enterprises (MNEs) in South Africa pay at least 15% in taxes. However, with the current threshold, only 17 out of 243 MNEs headquartered in South Africa qualify. This limited scope results in minimal revenue, a concern given the country’s pressing need for additional funds to support essential public services. The submission argues for lowering the QDMTT threshold to include more MNEs, thereby increasing revenue that could be reinvested in public infrastructure and social services.
The Undertaxed Payments Rule (UTPR)
The UTPR is absent from the current Draft Bill. This rule, which allows tax authorities to deny deductions for cross-border payments to low-tax jurisdictions, is crucial for curbing profit shifting. The submission recommends including the UTPR in the Draft Bill to ensure it can be implemented by January 2025.
This submission emphasizes the need for a more transparent and inclusive approach to tax policy, one that safeguards South Africa’s tax sovereignty while contributing to global efforts for fair taxation.