Global Tax Changes Create Challenges and Opportunities for Africa

Tax reforms driven by OECD and UN initiatives are reshaping the international tax landscape and require African economies, governments, and businesses to adapt to an evolving global tax environment.

It’s essential for African governments to engage actively in both the OECD and UN processes, working together as a bloc to advocate for their interests and ensure that global tax reforms address their specific circumstances.

Meanwhile, businesses operating in Africa should strengthen their compliance systems. As the global tax rules evolve, companies will need to stay informed and enhance their tax reporting capabilities to navigate the complexities of multiple tax regimes.

Concerns have been raised by African countries about the appropriateness and complexity of the Organization for Economic Cooperation and Development’s two-pillar solution for developing countries. Many African countries will face significant challenges in implementing these reforms due to limited administrative capacity and resources.

Regarding digital commerce, there is also the much bigger question of whether an African country will earn more from enacting its own digital services tax than it would from its share of the global tax pot. Some developed countries including France, the UK, and most recently Canada have also enacted domestic DST legislation that breaches their commitments under the two-pillar solution, coming under fire by the US and others.

In response to these challenges, the UN has positioned itself as an alternative platform for shaping global tax policy, providing a more inclusive approach for developing economies, including those in Africa.

The proposed UN Framework Convention on International Tax Cooperation is expected, in addition to addressing tax avoidance, to propose simpler tax rules and address tax-related illicit financial flows—an area that resonates with the needs and priorities of many African nations.

African governments have welcomed the UN’s inclusive approach, and see this as an opportunity to assert greater tax sovereignty and shape global reforms to better fit their economic circumstances.

The UN’s initiative is gaining traction. The 79th UN General Assembly is expected to vote on terms of reference for a framework convention on international tax cooperation this month. If those are approved, the UN could finalize the framework convention by 2027.

Despite the promise of the UN’s approach, not all countries are comfortable with the initiative. The EU, and the US and other countries, have expressed concerns about lack of consensus-based decision-making in the UN process. Also, questions have been raised about the fate of the work of the OECD, culminating in the Pillar One and Pillar Two proposals.

This last concern led, in the August UN session, to debate about paragraph 22 of the terms of reference that states the “negotiating committee should take into consideration the work of other relevant forums.” The question was to what extent the hands of the negotiating committee should be tied by previous work such as the OECD’s.

The possible conflict between the OECD’s two-pillar solution and the UN’s proposed framework convention would create significant uncertainty for African countries and businesses. If those nations attempt to implement both frameworks, they risk facing conflicting tax rules, which could lead to confusion in policy application and an increased compliance burden for businesses.

Building administrative capacity will be crucial for implementing any global tax framework, whether that of the OECD or the UN. By participating in both forums, African nations can better prepare for whichever framework gains broader international acceptance.

Proactive engagement and strategic adaptation will be critical to ensuring that Africa can turn these global challenges into opportunities for sustainable economic growth and development.

Further, African countries should diversify their investment strategies. With the potential decline in the effectiveness of tax incentives due to the global minimum tax, governments can shift focus to non-tax incentives, such as improving infrastructure and regulatory stability. These measures will make African markets more attractive to investors, even as the global tax landscape changes.

Expanding the tax net, particularly by incorporating the informal economic sector, will also be essential for growing revenue and improving the currently low tax-to-GDP ratio in many African countries.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Theophilus Emuwa is partner and head of the tax and corporate/commercial practice groups with AELEX, a law firm with offices in Nigeria and Ghana.

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