President Ramaphosa’s enactment of the Global Minimum Tax Act¹ on December 24, 2024, is a landmark shift in global taxation. The Act’s objectives are to promote equitable revenue generation and prohibit tax evasion. In addition to tackling urgent local fiscal challenges, South Africa’s dedication to this reform, especially during its G20 Presidency, highlights its role in shaping a more equitable global economic system. In accordance with the OECD’s Inclusive Framework on Base Erosion and Profit Shifting (BEPS), the global minimum tax act outlines two reform pillars. Pillar one is to transfer taxing rights to market jurisdictions where income is produced, regardless of physical presence. Pillar two reduces the incentive for multinational corporations (MNCs) to move their earnings to low-tax countries by establishing a 15% global minimum effective tax rate on corporate profits of domestic constituent entities and domestic joint ventures exceeding 750 million euros.

For many years, multinational companies (MNCs), especially those with operations in Africa, have used profit-shifting and transfer pricing techniques to reduce their tax obligations while denying governments critical revenue. Many African countries have low GDPs per capita as a result of this financial leakage due to inadequate domestic income mobilization, which forces them to rely on external debt.  Mali, Niger, and Burkina Faso are among the African countries that have recently demonstrated their economic sovereignty by renouncing colonial-era tax accords that favoured foreign enterprises and seized gold holdings from French companies with which they have a dispute on taxes. The aforementioned measures underscore the increasing call for more robust fiscal regulation. This policy serves as more than simply a budgetary instrument for South Africa. It is a tool for addressing economic inequality, boosting governmental capacity, and bringing domestic policy into line with international standards, whereas redressing historical injustices and promoting growth that is inclusive. While lessening dependency on politically delicate policies like raising income taxes and value added tax (VAT), the Act has the potential to secure sizable additional revenue sources. According to the 2024 National Treasury Budget speech approximately R8 billion will be generated from corporate tax revenue in 2026/27, as a result of this Act².

South Africa’s fiscal pressures, from sluggish economic growth to rising public debt, have strained essential public services. The global minimum tax provides a steady source of income that may be used to pay for the just energy transition, healthcare, education, and infrastructure projects. These are all important socioeconomic development matters. Historically, MNCs doing business in South Africa have undermined tax income by shifting profits overseas through the use of transfer pricing loopholes. The South African Revenue Service (SARS) now has more enforcement capabilities because of the new tax structure, which will assist them counter profit shifting and improve compliance. Although tax evasion is addressed by this change, it raises concerns related to whether South Africa will remain competitive in luring foreign direct investment (FDI). South Africa may improve its tax policies’ alignment with investment incentives like those utilized by Special Economic Zones (SEZs) and research and development initiatives, especially in key sectors like manufacturing and green technology, in order to reduce this risk. Moreover, by capitalizing on its advantages in resource endowments, a developing green economy, and strategic trade alliances to draw in ethical investments, South Africa can mitigate this risk.

Enacting the global minimum tax during the G20 Presidency demonstrates South Africa’s dedication to multilateralism and fair taxation. The leadership of South Africa also serves as an influence for other African countries, highlighting the significance of equitable taxes in tackling inequality. Setting a precedent and creating space for future discussions on international tax systems. To date, the global minimum tax framework has been approved by about 37 countries, nine of which are G20 members. Although other African nations, including Nigeria and Kenya, have shown interest, only South Africa has enacted the Global Minimum Tax Act. South Africa will learn a lot from other G20 countries’ experiences implementing global minimum tax changes, including Canada and Australia. While preserving an appealing atmosphere for business, these countries have taken steps to protect their tax bases. From these tactics, the presidency might adopt a South African approach to fully capitalize the global minimum tax while tackling its own issues, such high unemployment and inequality. Its execution, however, necessitates giving considerable thought to the best way to handle the procedure. In order to guarantee compliance, this involves strategically investing in administrative capacity, as specified by the Global Minimum Tax Administrative Act³.

Furthermore, the National Treasury needs to decide how much of the revenue will go toward financing public services rather than debt financing, and to provide transparency in revenue allocation as its highest priority. To further integrate South Africa’s tax laws with the OECD framework and avoid double taxation, international coordination is crucial. In addition to securing the funds required for sustainable development through the Act, South Africa is strengthening its position as a global leader by promoting fair taxation. This policy paves the way for a more sustainable and inclusive future by demonstrating a commitment to economic justice. South Africa’s G20 presidency is instrumental in shaping a more equitable global economic system that guarantees multinational corporations make their fair share of contributions while supporting the upliftment of communities that have been marginalized.

1 South Africa Department of National Treasury. 2024. Global Minimum Tax Act, 2024 (Act No. 46 of 2024). Government Gazzette, No 51830, Vol 714. [Online] Available at: https://www.gov.za/sites/default/files/gcis_document/202501/51830-globalminimumtaxact46of2024.pdf

2 Godongwana, E. 2024. Budget Speech. National Treasury. [Online] Available at: https://www.treasury.gov.za/documents/National%20Budget/2024/speech/English%202024%20Budget%20Speech.pdf

3 South Africa Department of National Treasury. 2024. Global Minimum Tax Administration Act, 2024 (Act No. 47 of 2024). Government Gazzette, No 51884, Vol 715. [Online] Available at: https://www.gov.za/sites/default/files/gcis_document/202501/51884globalminimumtaxadministrationact47of2024.pdf

Asanda Koyo is a research assistant at the Institute for Global Dialogue associated with UNISA and a Master of Commerce in Applied Development Economics candidate at the University of the Witwatersrand. Her views do not necessarily reflect those of the IGD.