Global corporate taxation requires urgent reform, as low-income countries are losing significant amounts of revenue due to tax competition and profit-shifting.
The International Monetary Fund (IMF) said in a paper on Monday the countries outside the Organisation for Economic Co-operation and Development, commonly known as the OECD, lose about $200 billion (Sh20 trillion) in revenue per year or about 1.3 per cent of gross domestic product (GDP).
This is due to multinational companies shifting profits to low-tax locations.
Christine Lagarde, managing director of the IMF, said the revenue thus lost to the low-income countries could jeopardise their efforts to fight poverty and meet development challenges.
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“The current situation is especially harmful to low-income countries, depriving them of much-needed revenue to help them achieve higher economic growth, reduce poverty and meet the 2030 Sustainable Development Goals,” she said.
Meanwhile, Ms Lagarde also questioned “faith in the fairness of the overall tax system” due to “the ease with which multinationals seem able to avoid tax, and the three-decade-long decline in corporate tax rates.”
“Advanced economies have long shaped international corporate tax rules, without considering how they would affect low-income countries,” she said.
Besides, the IMF paper especially noted a taxation dilemma in the newly thriving digital economy, saying this new business model that mainly builds on intangible assets just proved how outdated the current tax system was.
“Countries with many users or consumers of digital services find themselves with little or no tax revenue from these companies,” said Lagarde, “because they have no physical presence there.”
IMF said it would also promote the reform with its expertise in taxation.
