What Does the G7 Proposal on Taxation of the Digitalised Economy Mean for African countries?

The document examines the G7 proposal for taxing the digitalised economy, specifically the OECD's Pillar 1 and Pillar 2. It argues that the US-led amendments—including a 15% global minimum effective tax rate and high revenue thresholds for Pillar 1—disadvantage African nations. The brief highlights that many MNEs operate in Africa without a physical presence, exploiting loopholes to avoid tax. It warns that the proposed rules may force African countries to surrender unilateral taxing rights (like Digital Service Taxes) without gaining significant revenue, as most MNEs in Africa fall below the G7's high thresholds. The authors advocate for a UN-led global tax body to ensure greater legitimacy and equity.

• Current international tax rules allow Multi-National Enterprises (MNEs) to avoid paying taxes in African market jurisdictions because they can operate digitally and remotely without maintaining a physical presence.
• The G7 adopted a US-led proposal that significantly narrowed the scope of Pillar 1, raising the revenue threshold to USD 20 billion and the profitability threshold to 10%, which excludes most MNEs operating in African markets.
• The proposed 15% global minimum Effective Tax Rate (ETR) under Pillar 2 may result in African countries losing tax revenue to the home countries of MNEs via the Income Inclusion Rule, particularly where local effective rates are lower due to incentives or deemed profit taxation.
• The G7 proposal is viewed as inequitable, with Tax Justice Network estimates suggesting the G7 will capture 60% of the additional revenue from Pillar 2, while the remaining 90% of the world's population will share 40%.
• Implementing Pillar 1 may require African countries to remove unilateral measures such as Digital Service Taxes (DST) and Significant Economic Presence (SEP) rules, potentially leading to negative revenue returns since most companies in Africa do not meet the Pillar 1 thresholds.
• The authors recommend establishing a global tax body under the UN to provide more legitimacy and equity than the current OECD-led process, and suggest adopting a Formulary Apportionment Rule as a fairer alternative to the current Pillar 2 rules.

APA

Mustapha, M. N., & Nyamudzanga, L. (2021). What Does the G7 Proposal on Taxation of the Digitalised Economy Mean for African countries? Africa Policy Research Institute. https://afripoli.org/what-does-the-g7-proposal-on-taxation-of-the-digitalised-economy-mean-for-african-countries

Chicago

Mustapha, Mustapha Ndajiwo, and Learnmore Nyamudzanga. What Does the G7 Proposal on Taxation of the Digitalised Economy Mean for African countries? Africa Policy Research Institute, 2021. https://afripoli.org/what-does-the-g7-proposal-on-taxation-of-the-digitalised-economy-mean-for-african-countries.

Wikipedia

{{cite report |last1=Mustapha |first1=Mustapha Ndajiwo |last2=Nyamudzanga |first2=Learnmore |title=What Does the G7 Proposal on Taxation of the Digitalised Economy Mean for African countries? |publisher=Africa Policy Research Institute |date=3 September 2021 |url=https://afripoli.org/what-does-the-g7-proposal-on-taxation-of-the-digitalised-economy-mean-for-african-countries |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{mustapha2021what, author = {Mustapha, Mustapha Ndajiwo and Nyamudzanga, Learnmore}, title = {{What Does the G7 Proposal on Taxation of the Digitalised Economy Mean for African countries?}}, institution = {Africa Policy Research Institute}, year = {2021}, month = sep, url = {https://afripoli.org/what-does-the-g7-proposal-on-taxation-of-the-digitalised-economy-mean-for-african-countries}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }