handbook-tb

Tax incentives: protecting the tax base2.2.4 Guidance for policymakersNo shortage exists on advice to policymakers on how to design andimplement tax incentives. Richard M. Bird has put forth a relativelyconcise prescription. 36 He first recommends that policymakers keeptax incentives simple. Bird contends that attempts to fine-tune incentivesto achieve detailed policy goals are likely to be costly to administerand unlikely to produce the desired result. Second, Bird recommendsthat the government keep good records on who gets what tax incentives,for what time period and at what costs in revenue forgone. Thisinformation is necessary to ensure transparency and accountability.Finally, governments must evaluate the effectiveness of tax incentivesin achieving the desired results and be willing to terminate or modifythose incentive programmes that fail to achieve their objectives.The OECD has prepared a “best practice” guide to aid in thetransparency and governance of tax incentives in developing countries.37 Box 3 provides a summary of the OECD recommendations.Box 3. OECD draft principles to enhance the transparencyand governance of tax incentives for investment in developingcountries1. Make public a statement of all tax incentives for investments andtheir objectives within the governing framework.2. Provide tax incentives for investment through tax laws only.3. Consolidate all tax incentives for investment under the authorityof one government body, where possible.4. Ensure tax incentives for investments are ratified through thelawmaking body or parliament.5. Administer tax incentives for investment in a transparentmanner.36Richard M. Bird, “Tax Incentives for Investment in Developing Countries,”supra note 7.37OECD, Draft Principles to Enhance the Transparency and Governanceof Tax Incentives for Investment in Developing Countries, available at http://www.oecd.org/ctp/tax-global/transparency-and-governance-principles.pdf.481