The fate of ECOWAS and the G7 finance ministers 15% Corporation Taxon Digital Tech Companies

The finance ministers and the central bank governors of the G7 member countries have reached an agreement to have global digital tech companies pay a minimum of 15% of the profit generated as corporate tax, to the economy where such profit is generated.

The 47th G7 summit scheduled for 11-13th June 2021 was preceded by several inter-ministerial meetings and agreements, of which the G7 Finance ministers 5th June 2021agreement was made.

The G7 summit was supposed to be meant for its membership, consisting of the USA, the UK, Japan, Canada, France, Germany and Italy, but the scope of the agenda were more global in their nature and intent.

This 2021 G7 Summit somehow incorporated the EU while visibly excluding Russia and China on matters claim to be of global nature.

The decision of the G7 finance ministers for agreement of 15% corporation tax on the digital tech span from the challenges they face by the nature of the new industry that allows for tax evasion. It is meant to discourage these service providers from taking advantage of a cheap tax economy to evade paying the right amount of tax in less favourable tax economies.

So, Uber for example had its headquarter in the Netherlands while operating in the UK, that then imply Uber is not a corporate body in the UK and therefore little or no corporate tax. The new G7 Finance ministers agreement means Uber will be paying 15% as corporation tax in any of the countries it operates across Europe, regardless of the home country of the ownership or location identify as the Uber headquarters.

This new agreement goes a long way to stop tit-for-tat trade war among the G7 countries when the authority of the victim economy raises the red flag and act accordingly as such actions led to counter reaction by a similar response from corporate tax cheat home authority, in defence of their national interest abroad.

It is hoped the G7 finance ministers agreement will set in place mechanism to ensure the right taxes are paid where they are earned. There is however a difference between "right taxes are paid where they are earned" and "the right taxes are paid anywhere they earn".

In a summit where Russia and China are excluded, "where" and "anywhere" can not be the same. The G7 nations, China and Russia are all providers and therefore, earners of digital corporate profit. So where some players in the industry are excluded from the G7 Summit, enforcement of the new treaty falls on the G7 nations.

The fact about taxation is, it is subject to legal interpretation and enforcement. Who is then going to be the enforcer of the G7 Finance ministers agreement of the 15% corporate tax, when it is obvious that no business voluntarily part with its earn profit without being forced to do so? All the G7 countries, as well as the EU as a bloc, are capable of enforcing the 15% corporate tax agreement against erring businesses. These economies have the legal institutions globally reputable enough in the interpretation of such laws.

China and Russia also have the capabilities to ensure their core interest in the collection of corporate tax from foreign businesses operating in their economies are met. The challenge is in economies outside the G7, EU, China and Russia, where the ECOWAS readily come to mind.

The G7 Finance Ministers Agreement of 15% Corporate Tax on digital Tech-Gaint Companies operating in ECOWAS of over 350 million people, is something critically worth exploring. All the global digital tech companies operating in every one of the 15 West African economies are foreign own and they go to any length to evade tax as they do in the G7 economies.

The authorities of the 15 West African economies will be up in the sky jubilating in welcoming the announcement by the G7 Finance ministers, even when none of these authorities were present at the summit.

The West Africans and their governments will be so happy in feeling that the finance ministers of the very countries whose national are those behind the tax evasion are now sounding the trumpet for fair play.

In their jubilation, most West Africans are assuming that the G7 finance ministers will be going about West African countries policing erring businesses, to ensure the right tax is paid.

The reality is, it is the responsibility of the authority of every economy to interpret and enforce its laws enough to collect taxes from those operating within the economy. So since businesses have to be made to pay tax as such payment is a fall in the amount of profit for the owners, the authority of the state where such revenue is generated must have strong capabilities enough to force payment.

It is very unfortunate that no single economy in West Africa of the 15 states has the political and legal capability to force the global digital tech giants into paying the tax such business do not want to pay. The political weight is poor and the legal institutions are not strong enough.

Unlike the Western European 27 economies that evolved an EU political, economic and legal weight to deal with any erring multinational business giant, the West African 15 authorities have not been able to strengthen the ECOWAS political, economic and legal structures to deal with such multinational challenges.

It is therefore obvious the West African situation is going to remain the same, since the authorities of the economies will still be at the mercy of the multinational oorporations, and the G7 member countries will not be policing across West Africa to ensure conformity.

The big question is, how damaging is such tax evasion to the population and economy of West Africa? The answer to this lies in the huge role tax revenue play to the state, the population and businesses.

Every state and the business operating within such an economy, rely on the quality of its population of which no West African economy is an exception. High proportion of quality population means more skilled labour for efficiency in its productions effort.

It is sad skill labour come with several years of training the population which is not the business of the employer but that of the state. The training starts when the individual is young, till they are ready to enter the labour market, where the employer scout for the already developed labour to polish up to suit the culture of the employer. A footballer, for example, learn and grow with most of his or her basic skills from primary school age.

So when the employer is in the labour market, all that matter is what to do with the already developed person.

In a fantasy of a close economy, the assumption of all businesses being own by locals, whose assets result from the profits earned within the economy, is unrealistic. The reality is, the current business world goes beyond borders and profits repatriated to other lands. So when the state is training its population and employers are evading tax because they can do so, to repatriate such income out of the economy, the continuous fall in tax revenue to the state automatically lead to falling in the state responsibilities to the population.

The fall in tax revenue leads to a proportionate fall in educational fund, health care and sanitation. The fall continues till it becomes so marginal to make any meaningful impact.

The state then withdraws from its socio-economic responsibilities, for private providers to serve those who can afford to pay.

Everything becomes "Cash and Carry" as we say in Ghana. Most of the population then become uneducated due to the exorbitant cost, while the few who eventually made it by their family support, make themselves available to the employer who still repatriates the earning generated from the employment of labour abroad.

The interesting thing is, since majority of the population end up as illiterates and therefore unskill, the total earning made by the few skill employable part of the population over which the state generates its tax become small. The situation is worsened up for the state when such drop in the revenue generated is further lost by tax evasion of the foreign employer in these days of high mechanisation in the production chain

The summary of the above is, revenue on personal tax to the state becomes very low as the unskill labourers are paid tipings and the skill ones are very few.

This poor revenue in tax to the state, blame on the poor productivity of the Africans, force the economies into borrowing from the very tax revenue they failed to collect that got lodged with external financial institutions, at cut throat interest rates. This same poor tax revenue force the West African authorities to be selling their non-human natural resources at give away commodity prices, or even go into an agreement of getting some desperately needed money now, against future supply.

Everyone in West Africa blames everything on corruption when the actual problem is about the plight of the weak, against the privileges of the strong.

It is difficult for most West Africans to believe that presidents of West African countries daily receive instructions from G7 countries to dismiss their ministers, for demanding to have the right tax paid. Heads of West African states that choose to disobey such instruction end up with all sorts of threats and diplomatic isolation.

There is a strong argument that West African electorates are the real victims here. The argument further made a case that, since the weakness associated with the West African individual authorities is responsible for political and economic indicipline, leading to the tax evasions, the need to make the ECOWAS institutions stronger is long overdue.

A stronger ECOWAS institutions start with ECOWAS laws backed up by ECOWAS legislations, where ECOWAS legislations demand directly elected ECOWAS MPs by the electorates of the 15 West African countries.

Corruption is not unique to West Africans but when lawless reign due to the absence of law makers, corruption become something else.

Kofi Ali Abdul-Yekin

Chairman ECDRA

(ECOWAS Citizens Democratic Right Advocates)