Global minimum corporate income tax
Challenges and prospects for Uganda
This paper simulates the impact of the global minimum corporate tax rate (GMCTR) in Uganda by estimating the difference between the mechanical and the behavioural changes in tax revenue.
Overall, implementation of GMCTR will increase tax revenue, and the revenue increase is inversely proportional to the behavioural response. The differences in elasticities may introduce tax competition. In addition, the revenue gain is positive but quantitatively small.
There are also sectoral differences in revenue gain resulting from the GMCTR. The agriculture, forestry, and fishing; finance and insurance; manufacturing; and real estate sectors have the highest revenue gain, but may also face the highest risk of divestment due to extremely high changes in average effective tax rate (AETR) resulting from implementation of the GMCTR.
The results also suggest that the GMCTR may curtail base erosion and profit shifting of MNCs that are thinly capitalized, for the revenue gain from thinly capitalized MNCs is higher than that from their counterparts who are not.
Lastly, smaller and younger cash-constrained firms, which contribute marginal revenue, face lower changes in AETR.
The paper recommends acknowledgement of local macroeconomic, demographic, and institutional features and tax capacity during the setting of the tax rate. This requires coordination (regional cooperation) to minimize tax competition presented by differentials in elasticities and calls for the segmentation or recognition of sectoral and firm size differences.