Deferred Until Distribution: Assessing the Viability of the Distributed Profit Tax Model for Corporate Taxation in Sub-Saharan Africa

Abstract

Sub-Saharan African corporate income tax systems collect revenue well below their statutory potential, constrained by a narrow formal-sector base, extensive informality, and limited transfer-pricing enforcement capacity. A small number of jurisdictions, Estonia, Georgia, Latvia, and Moldova among them, have addressed a related but distinct problem by taxing corporate profit only at the point of distribution rather than annually, a design known as the distributed profit tax (DPT). The paper examines whether DPT could function as a viable replacement for conventional corporate income tax across Sub-Saharan Africa. It sets out the theoretical case for DPT as a tax on economic rent, surveys its adoption and design variation across the four jurisdictions above, and maps the structural features of Sub-Saharan African CIT regimes that any replacement would have to accommodate. A comparative analysis then weighs DPT's investment-incentive and administrative benefits against its revenue-timing risk and its dependence on anti-avoidance capacity that most Sub-Saharan African administrations have not yet built. The paper concludes that wholesale replacement is not currently defensible, but that a staged, segment-limited adoption, beginning with small and medium enterprises and expanding only as administrative capacity develops, offers a more realistic path, and one that could replace part of the region's existing, discretionary tax-holiday apparatus with a more transparent, rule-based alternative.