United nations of tax incentives

C . 
Review and sunset provisions
The costs and benefits of tax incentives are not easy to evaluate and 
are difficult to quantify and estimate. Incentives that may work well 
in one country or region may be ineffective in another context. Tax 
incentive regimes in many countries have evolved from general tax 
holidays to incentive regimes that are more narrowly targeted.
It may therefore be advisable: (a) to limit the duration of tax 
incentive regimes to reduce the potential costs of unsuccessful or 
poorly designed programmes by including a specific sunset provision 
as part of the original legislation; (b) to design incentive regimes that 
require beneficiaries to report to investment agencies and that specify 
which government agency is responsible for monitoring and enforcing 
qualification and any recapture provisions; and (c) to require an 
evaluation as to the costs and benefits of specific tax incentive regimes 
and to specify the timing of the evaluation and the parties responsible 
for conducting the review.
D . 
Guidance for policymakers
No shortage exists of advice to policymakers; a relatively concise 
prescription on how to design and implement tax incentives is to keep 
them simple.
 26 
Attempts to fine-tune incentives to achieve detailed 
policy goals are likely to be costly to administer and unlikely to produce 
the desired result. The Government should diligently record the 
beneficiaries of tax incentives, their duration and the costs in forgone 
revenue. That information is necessary to ensure transparency and 
accountability. Governments must evaluate tax incentives’ effectiveness 
in achieving the desired results and be willing to terminate or modify 
those incentive programmes that fail to achieve their objectives.
26 
Richard M. Bird, “Tax incentives for investment in developing countries”, 
in 
Fiscal Reform and Structural Change in Developing Countries
, vol. 1, Guillermo 
Perry, John Whalley and Gary McMahon, eds. (London, United Kingdom, and 
Canada, Macmillan in association with the International Development Research 
Centre, 2000).

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