South Africa's Finance Minister Enoch Godongwana. File photo.
Having been a Journalist for several years, I’ve witnessed numerous changes in legislation. However, the introduction of the Global Minimum Tax Act (GMT Act) by the National Treasury has caught my attention.
This piece of legislation is aimed at enhancing South Africa's ability to collect tax revenue from large multinational enterprises (MNEs).
According to Richan Schwellnus, tax attorney at Tax Consulting SA, simply put, the GMT Act 'South Africanises' the international tax rules set by the Organisation for Economic Cooperation and Development (OECD).
He says while technical, the integration of these rules is intended to ensure that MNEs pay their fair share of tax in South Africa. It also offers the option of a tax credit to safeguard against potential double taxation, as explained by Schwellnus.
Critics, however, have raised concerns about the level of influence the OECD might have over our local tax laws. They argue that Minister of Finance, Enoch Godongwana has the power to incorporate these international rules into our legislation without public input or debate. Despite these concerns, the enactment of the GMT Act signifies South Africa's commitment to aligning with international tax standards.
As Schwellnus points out, from becoming a Key Member of the OECD in 2007 to hosting the G20 Summit later in 2025, South Africa seems to be stepping up to participate in the global economy, potentially boosting investor confidence and foreign direct investment.
In Schwellnus's opinion, the GMT Act isn't primarily aimed at taxing foreign MNEs like Google and Amazon operating in South Africa. Instead, it ensures that South African MNEs conducting business in other jurisdictions pay their fair share of tax at home.
This could positively impact the tax collection from foreign MNEs, though South Africa already has robust legal mechanisms to collect taxes, such as source rules, local transfer pricing regulations requiring arm's length transactions, and withholding taxes on dividends declared.
The GMT Act is indeed a key component in ensuring fair competition internationally, by making sure that all MNEs pay their fair share of tax, irrespective of where they operate. As Schwellnus highlighted, South Africa is known for its well-developed and robust tax system; we are not considered a low-tax jurisdiction.
The hope is that through the GMT Act, MNEs will be compelled to pay their fair share of tax, ultimately empowering South Africa to collect its due share of tax revenue.
Tax revenue remains the primary source of funding for government initiatives aimed at infrastructure development and social upliftment. Hence, the GMT Act could lead to increased tax revenue collection, thereby improving the lives of everyone in South Africa.
Schwellnus says while the full impact of the GMT Act is yet to be seen, it's worth noting that it will apply retroactively to fiscal years starting on or after January 1, 2024. "This could upset the apple cart regarding the tax planning and affairs of some MNEs for the last year," says Schwellnus.
On a more personal note, the reason I'm so invested in this piece is that, having spoken and received commentary from experts like Schwellnus, I've witnessed first hand the challenges our country faces in collecting fair tax from MNEs. The enactment of the GMT Act isn't just a technical adjustment; it's a significant move towards ensuring that every participant in our economy contributes equitably. Ensuring fair tax practices isn't just about numbers; it's about fairness, justice, and providing our government with the means to uplift our society. That's a goal worth striving for in any language.
* Maleke is the editor of Personal Finance.
PERSONAL FINANCE