Effectiveness and Economic Impact of Tax Incentives in the SADC ...

More documents

Recommendations

Info

2-4 EFFECTIVENESS AND IMPACT OF TAX INCENTIVES IN THE SADC REGION Exhibit 2-1 A Productivity Package Steady gains in aggregate productivity emerge from a complicated process of evolutionary changes at the firm and industry level, as some firms grow and others shrink or fold. Joseph Schumpeter long ago identified this "creative destruction" as a central feature of growth dynamics. The following policies can make an important contribution: • Allow resource allocation decisions to be determined primarily by market mechanisms that harness the power of personal initiative and self-interest in response to price signals reflecting resource costs and effective demand. • Invest in human capital, including technical, scientific, and managerial education, particularly where linked to clusters of national competitiveness. • Expand the scope for specialization and scale economies by improving transportation and communications infrastructure (which also reduces costs throughout the supply chain) and facilitating production for the export market. • Strengthen competition throughout the economy by reducing highly protective trade barriers, eliminating legal and administrative impediments to entry and exit of new businesses, and reforming or privatizing industries that have been operating as inefficient state monopolies. • Establish a welcoming environment to attract and facilitate productive FDI as a major source of technical and managerial innovation, along with domestic investment and innovation. • Develop policies to facilitate the introduction and adaptation and development of more productive technologies, including the protection of property rights and the enforcement of contracts. Tax incentives may be a useful tool for stimulating productive investment, research and development, and training. But they must be carefully designed and well administered so as to avoid side-effects that diminish productivity by distorting resource allocation, sustaining inefficient or unsustainable activities, and losing revenue needed for other components of the productivity package. possible locations for a given investment project—then the investor will normally favor the location offering the highest risk-adjusted rate of return. Exhibit 2-2 shows that a variety of government policies affect risks and returns for investors. The tax system, in particular, influences the viability of investment through several channels. The rate of return depends clearly on the effective tax rates. In addition, the perceived risk is affected by unpredictability of the tax code, the degree of transparency or arbitrariness in tax administration, and technical factors such as investment allowances and loss carry-forward provisions. The tax system, however, is just one of many policy variables entering the risk/return analysis. Furthermore, a host of non-policy variables have a strong effect on investment decisions. These include the distance to major markets, proximity to raw materials, climate,
TAXATION, INVESTMENT, AND GROWTH 2-5 Exhibit 2-2 Policies Affecting Investment Risk and Return How can public policies address the underlying determinants of investment—risk and return? Perceived risk can be reduced by policies aimed at • Maintaining a commitment to macroeconomic stability, including low inflation, a sustainable budget deficit, a sustainable debt profile, and a reasonably stable real exchange rate. • Strengthening institutions to protect property rights, enforce contracts, and control crime. • Reducing the risk of a financial crisis through strict prudential regulations and effective banking supervision. • Eliminating, as far as possible, bureaucratic discretion in the implementation of laws and regulations affecting investments and business operations. • Ensuring repatriation of capital and profits from foreign investment, without restrictions. • Improving transparency in macroeconomic and financial management by adopting international standards for data dissemination. • Reducing balance of payments risk by maintaining a market-based exchange rate, pursuing policies to diversify exports, and reducing dependency on foreign aid. • Improving the dependability of basic infrastructure services through mechanisms to introduce effective management incentives, appropriate pricing for cost recovery, and timely maintenance systems. • Reducing political risks by respecting basic human rights, establishing participatory approaches to governance, and developing effective procedures for dispute resolution. • Enhancing the predictability of the tax system by establishing a well defined strategy for tax reforms and minimizing the scope for arbitrary assessments. Investment returns can be enhanced by government policies aimed at • Improving the quality of infrastructure, particularly in transportation, telecommunications (where moving slowly guarantees falling behind), energy, and water. • Lowering duties and barriers on international trade, to reduce costs and provide better access to wider regional and global markets. • Firmly committing to macroeconomic stability, to reduce borrowing costs and minimize risk premiums up and down the supply chain. • Investing in education and health services, including programs to roll back pandemic diseases such as HIV/AIDS and malaria. • Eliminating red-tape through deregulation, simplification of procedures, and civil service reform. • Establishing effective laws and institutions to control corruption (which is a heavy implicit tax on business). • Establishing an attractive tax system with moderate effective tax rates. • Providing special incentives that may take the form of tax breaks, direct grants, or subsidies, targeted training programs, or improved infrastructure services.
Page 1: TECHNICAL REPORT Effectiveness and
Page 5 and 6: Contents Executive Summary xi 1. In
Page 7 and 8: Contents (continued) ILLUSTRATIONS
Page 9 and 10: Glossary ACT additional company tax
Page 11 and 12: Preface The Scope of Work (SOW) for
Page 13: PREFACE IX Export Development & Inv
Page 16 and 17: XII EFFECTIVENESS AND IMPACT OF TAX
Page 18 and 19: XIV EFFECTIVENESS AND IMPACT OF TAX
Page 20 and 21: XVI EFFECTIVENESS AND IMPACT OF TAX
Page 22 and 23: XVIII EFFECTIVENESS AND IMPACT OF T
Page 25 and 26: 1. Introduction Why should schemes
Page 27 and 28: INTRODUCTION 1-3 well administered.
Page 29 and 30: INTRODUCTION 1-5 from selective to
Page 31 and 32: 2. Taxation, Investment, and Growth
Page 33: TAXATION, INVESTMENT, AND GROWTH 2-
Page 37 and 38: TAXATION, INVESTMENT, AND GROWTH 2-
Page 43: TAXATION, INVESTMENT, AND GROWTH 2-
Page 46 and 47: 3-2 EFFECTIVENESS AND IMPACT OF TAX
Page 54 and 55: 3-10 EFFECTIVENESS AND IMPACT OF TA
Page 84 and 85:
5-6 EFFECTIVENESS AND IMPACT OF TAX
Page 86 and 87:
5-8 EFFECTIVENESS AND IMPACT OF TAX
Page 88 and 89:
5-10 EFFECTIVENESS AND IMPACT OF TA
Page 90 and 91:
Page 92 and 93:
Page 95 and 96:
6. Economics of Harmful Tax Competi
Page 97 and 98:
ECONOMICS OF HARMFUL TAX COMPETITIO
Page 99 and 100:
Page 101 and 102:
Page 103 and 104:
Page 105 and 106:
Page 107 and 108:
Page 109 and 110:
7. Tax Systems and Tax Incentives i
Page 111 and 112:
TAX SYSTEMS AND INCENTIVES IN THE S
Page 113 and 114:
Page 115 and 116:
Page 117 and 118:
Page 119 and 120:
Page 121 and 122:
Page 123 and 124:
Page 125 and 126:
Page 127 and 128:
Page 129 and 130:
Page 131 and 132:
Table 7-5 Elements of Tax Structure
Page 133 and 134:
Table 7-5 (continued) Sheet 3 of 4
Page 135 and 136:
Notes a Mozambique information Coun
Page 137 and 138:
8. Conclusions and Recommendations
Page 139 and 140:
CONCLUSIONS AND RECOMMENDATIONS 8-3
Page 141 and 142:
Page 143 and 144:
Page 145:
Page 148 and 149:
R-2 EFFECTIVENESS AND IMPACT OF TAX
Page 150 and 151:
Page 152 and 153:
Page 154 and 155:
A-2 APPENDIX The present investment
Page 156 and 157:
A-4 APPENDIX Democratic Republic of
Page 158 and 159:
A-6 APPENDIX Government revenue in
Page 160 and 161:
A-8 APPENDIX income tax payable by
Page 162 and 163:
A-10 APPENDIX (though they are obli
Page 164 and 165:
A-12 APPENDIX • • • Asset All
Page 166 and 167:
A-14 APPENDIX also get zero import
Page 168 and 169:
A-16 APPENDIX EPZ measure was motiv
show all

Effectiveness and Economic Impact of Tax Incentives in the SADC ...

Create successful ePaper yourself

Delete template?

Save as template?