Should SA Pursue The Two-Pillar Solution In Terms Of Missing Digital Revenues In Lieu Of The Digital Services Tax?

Thesis / Dissertation


Permanent link to this Item
Journal Title
Link to Journal
Journal ISSN
Volume Title
The 1920s compromise to tax source revenues appears obsolete in the 21st century.1 The digitalization of modern economies has resulted in outdated tax laws. Brick-and-mortar type principles are still applied to determine revenue sources, whereas, in the digital age, many businesses have no physical presence that would otherwise allow states to tax profits of large multinational enterprises (MNEs) deemed to operate within their borders. While the world sought a consensus-based approach to deal with the issues, the Organisation for Economic Co-Operation and Development (OECD) introduced an interim solution – a Digital Services Tax (DST). The DST drew criticism from certain countries, as it is believed to target multinational companies unfairly. The OECD finally achieved worldwide consensus with the signing of the Two-Pillar Solution in 2021, which is to become effective in 2023; however, the signatories of the Two-Pillar Solution also committed themselves to abolish DSTs and refrain from developing any similar types of taxes. While most countries have agreed to the Two-Pillar Solution, some countries have not, including African Tax Administration Act (ATAF) member Kenya. Kenya indicated that its DST provides certainty and assures tax revenues whereas the Two-Pillar Solution's outcome remains uncertain, and the tax revenues are unclear. In addition, ATAF raised concern that the 15% global minimum tax rate proposed is too low for developing African countries and suggests such a threshold will continue to allow MNEs to avoid paying tax in African states. This dissertation will evaluate whether or not DST is a better option for SA rather than the Two-Pillar Solution. If not, are there other ways SA could recover missing digital tax revenues? Like Kenya, SA also has to consider the global minimum tax rate.