Amidst a state of economic crisis, Sri Lanka has joined countries such as Pakistan, Nigeria, and Kenya in refusing to sign the US-backed global minimum tax.
The agreement which has the approval of financial leaders from the G20's major economies would see multinational enterprises subject to a minimum 15% tax rate from 2023. The measure would ensure that tech giants such as Facebook and Amazon paid tax in countries where their goods or services were sold, even if they didn't have a physical presence there.
The Financial Times has described the move as the "biggest corporate tax reform for more than a century orchestrated by the OECD" and notes the success of the US Biden administration in securing the agreement, after initially proposing a 21% tax rate.
The deal has been agreed to by 136 countries, representing more than 90% of global GDP, and will also reallocate over $125 billion US dollars of profit from the world top 100 wealthiest multinational corporations.
Sri Lanka's tax problem
Sri Lanka's refusal to cosign the agreement comes as the country faces a serious risk of defaulting on its debts. In response, the government has attempted to slash taxes, which has reduced government revenues by a quarter, and proposed a "tax amnesty bill", which critics allege would legitimise fraud.
The country's ruling clan, the Rajapaksas, are also facing intense criticism after leaked reporting revealed how family members concealed millions in offshore trusts and shell companies.
The US has expressed concern over Sri Lanka's economy noting that it has “one of the most protectionist in the world”. Reporting by the State Department highlights that serious issues in "contract enforcement (164 out of 190); paying taxes (142/190); registering property (138/190); and obtaining credit (132/190)”.
The US State Department further highlights the risks for investors noting that the island is “a challenging place to do business, with high transaction costs aggravated by an unpredictable economic policy environment, inefficient delivery of government services, and opaque government procurement practices.”
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