Options for Low Income Countries’ Effective and Efficient Use of Tax Incentives for Investment
This background paper describes five different tools that can be used for the assessment of tax incentives by governments in low income countries’ (LICs). The first tool (an application of cost-benefit analysis) provides an overarching framework for assessment. Evaluations of the various costs and benefits of tax incentives are vital for informed decision making, but are rarely undertaken, partly because it can be a difficult exercise that is demanding in terms of data needs. The next three tools (tax expenditure assessment, corporate micro simulation models, and effective tax rate models) can be used as part of a comprehensive cost-benefit analysis, to shed light on particular aspects. Effective tax rate models shed light on the implications of tax parameters - including targeted tax incentives - on investment returns and help understand the implications of reform for expected investment outcomes. The document presents two tools for assessing the transparency and governance of tax incentives in LICs. These discuss principles in transparency and governance of tax incentives, and allow for benchmarking existing LIC practices against better alternatives.
Summary: | This background paper describes five
different tools that can be used for the assessment of tax
incentives by governments in low income countries’ (LICs).
The first tool (an application of cost-benefit analysis)
provides an overarching framework for assessment.
Evaluations of the various costs and benefits of tax
incentives are vital for informed decision making, but are
rarely undertaken, partly because it can be a difficult
exercise that is demanding in terms of data needs. The next
three tools (tax expenditure assessment, corporate micro
simulation models, and effective tax rate models) can be
used as part of a comprehensive cost-benefit analysis, to
shed light on particular aspects. Effective tax rate models
shed light on the implications of tax parameters - including
targeted tax incentives - on investment returns and help
understand the implications of reform for expected
investment outcomes. The document presents two tools for
assessing the transparency and governance of tax incentives
in LICs. These discuss principles in transparency and
governance of tax incentives, and allow for benchmarking
existing LIC practices against better alternatives. |
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