None of the global top ten lowest corporate tax rate nations, occur in Africa, and that may be one of the key reasons Africa is lagging behind in terms of global investment rates.
While International corporate income tax rates vary, the average rate of corporate tax sits at around 23.45%.
There are extremes, with a few countries such as the Caribbean, offering a 0% rate, while the small African nation of the Union of Comoros has the unwanted reputation of being the nation with the highest corporate tax rate, sitting at an economically suicidal rate of 50%.
The interesting factor is that as tax loopholes have regularly been closed in the past two decades, tax collections have improved and corporate tax rates have actually gone down on average since the 1980s.
Africa, like other developing regions globally also has a very large unaccounted for, cash economy that is very often not paying any taxation and adding to the overall burden of the corporate and individual tax payers.
Informal Industries in Africa Largely Avoiding Taxation
In Southern Africa, there is a large taxi industry that is largely unregulated in terms of revenue and taxation that in 2023 was estimated to generate an annual revenue of around R90 billion (ZAR), but only contributed a total tax amount of R5 million over the same period.
There has been much debate about the reasons for this but the bottom line is that the industry charges no Value added tax on its fares and pays way below the corporate tax levels currently set at 27% that had been reduced from 28% in 2023.
Should these loopholes and others be closed, it is also likely that the overall rate of tax for both corporates and individuals could see modulation over time.
Another issue is that due to higher taxation levels, many countries in Africa, including South Africa also offer large rebate or tax deductions to large manufacturing sectors such as the Automotive manufacturing sector. In South Africa this rebate is over 30% on the input cost of manufacturing that is off-set against tax.
Tax Rate Rogues and Winners
The African Countries with the lowest corporate tax rate are currently Mauritius and Tunisia, both with an annual rate of only 15%, while Chad, Guinea and Sudan all have a rate of 35%. More than 10% above the global average, while as mentioned above, the Union of Comoros holds the African Rogue crown at a 50% rate
In total, only five African States have an annual corporate tax rate below the global average.
A recent announcement by Equatorial Guinea, has seen the corporate tax rate, ease by 10 percent from 35% to 25% but will also be enforced together with stricter exemption controls with a simplified option for smaller taxpayers.
New International Minimum Corporate Tax Rate
South Africa has officially signed the Global Minimum Tax Act (GMTA) into law, mandating that large multinational enterprises (MNEs) operating in the country must adhere to a global minimum corporate tax rate of 15%.
The GMTA has been agreed to by 140 countries globally, and will implement a new standard global tax agreement proposed by the Organisation for Economic Co-operation and Development (OECD) aimed at ensuring multinational companies pay a minimum tax rate.
Corporate tax-friendly jurisdictions such as Ireland, Luxembourg, Switzerland and Barbados have already implemented the minimum rates, though it’s worth noting that only companies with earnings over €750 million or more are subject to the new 15% rate.
The laws of Tax Attraction
Low-corporate-tax countries attract entrepreneurs and foreign investors looking to take advantage of favourable tax policies, and these countries are generally more business-friendly overall and encourage higher amounts of foreign investment.
In comparison, South Africa and several other African nations, would seem to be concentrating all their efforts on creating a business unfriendly environment, including the most recent proposal from the south African trade minister to impose an additional tax levy of 3% on all corporate profits after tax. Another law just signed into law by president Ramaposa is the property expropriation act that will entitle the government to expropriate property without compensation, if considered to be in public interest to do so without a determination of what “public Interest” is.
These moves by various government are bewildering as the very same governments are regularly attempting to attract foreign investments on the global stage such as Davos, and appealing to investors to help in growing, what are often stagnant economies.
Additionally, the South African reserve bank has stubbornly held interest rates at high levels despite inflation in the country hitting 4-year lows in 2024 with the last quarter of 2024 having the lowest inflation rate for a quarter in over ten years.
More Meaningful Actions in Africa Required to Attract Investors
African Nations have to become far more meaningful in their actions and policies and tax regimes, if they are to move themselves into the focus of global and regional investors.
Most companies, like most individuals, identify with the need for governments to raise some taxes, and can happily contribute this.
This however comes with the provision that the tax rates are reasonable and that other environmental factors such as policy on labour and maintenance on infrastructure such as roads and rail and energy supply, are in return looked after by the government demanding the taxes.