Global minimum tax to add US$220b to government coffers

PARIS: The introduction of a global minimum corporate tax rate should generate an additional US$220 billion (RM950.3 billion) in annual revenues for governments, according to updated estimates published on Wednesday (Jan 18).

The Organisation for Economic Cooperation and Development (OECD), which helped shepherd the international agreement on the reform, said the amount is equivalent to 9% of global corporate income tax revenues.

It marks a considerable increase from the previous estimate of a US$150 billion annual revenue increase from the introduction of a minimum 15% tax rate.

More than 130 nations that account for 90% of the world economy agreed in 2021 to bring in the floor to end multinationals shopping for low tax rates.

The global minimum tax is only one part, known as Pillar Two, of the OECD agreement on tax reform.

The first pillar, which provides for the taxation of companies where they make their profits to limit tax evasion, primarily targets digital giants, still needs to be finalised.

The OECD also increased its estimates concerning how much in annual profits could fall under Pillar One provisions to US$200 billion, from US$125 billion previously. This would generate additional tax revenue of US$13-36 billion, with low and middle-income nations making big percentage gains.

“The international community has made significant progress towards the implementation of these reforms, which are designed to make our international tax arrangements fairer and work better in a digitalised, globalised world economy,” OECD Secretary-General Mathias Cormann said in a statement.

“This new economic impact analysis again underlines the importance of a swift, efficient and widespread implementation of these reforms to ensure these significant potential revenue gains can be realised,“ he added. – AFP