handbook-tb

Tax incentives: protecting the tax baseentities; and (c) the tax revenue gained from either activities from taxpayersgranted a tax incentive after the incentive expired or from theactivities generating other sources of tax revenue.Two methods to increase accountability and transparency oftax incentives are tax incentive budgets and general tax expenditureanalysis. As discussed below, in many countries the tax authorities donot have sole responsibility or discretion in designing and administeringtax incentive programmes. In many countries, different governmentagencies, such as foreign investment agencies or ministries of economy,have a role in designing investment regimes, approving projects, andmonitoring investments. These agencies’ major objective is attractinginvestments; they are often less concerned with protecting the tax base.One approach that merits consideration is to set a target monetaryamount of tax benefits to be granted under a tax incentive regime.This would require both the tax authorities and other government agenciesto agree on both a target amount and a methodology for determiningthe revenue costs associated with a particular tax incentive regime.A second method that merits serious consideration is to includetax incentives in a formal “tax expenditure budget.” All OECD countriesand several other countries require estimates to be prepared onthe revenue impact of certain existing and proposed tax provisions.The goal of these budgets is to highlight the revenue consequencesof providing tax benefits. This approach seeks to treat tax expendituresin a manner similar to direct spending programmes, and thuseffectively equates direct spending by the government with indirectspending by the government through the tax system. While the scopeof tax expenditure analysis goes beyond tax incentives, countries canchoose to follow this approach for only certain types of tax incentivesor for a broader class of tax provisions. For those countries that donot have a formal tax expenditure requirement, it makes good senseto go through the exercise in deciding whether to adopt or retain a taxincentive regime. 2727Sebastian James, “Effectiveness of Tax and Non-Tax Incentives andInvestments: Evidence and Policy Implications,” supra note 6.467