United nations of tax incentives

Part I: Theoretical Background
OECD has prepared a best practices guide to enhance 
the transparency and governance of tax incentives in developing 
countries.
 27 
The following actions by Governments are needed in 
order to implement the best practices:
(a) Make public a statement of all tax incentives for investments 
and their objectives within the governing framework;
(b) Provide tax incentives for investment through tax laws only;
(c) Consolidate all tax incentives for investment under the author-
ity of one government body, where possible;
(d) Ensure tax incentives for investments are ratified through the 
law-making body or parliament;
(e) Administer tax incentives for investment in a transpar-
ent manner;
(f) Calculate the amount of forgone revenue attributable to tax 
incentives for investment and publicly release a statement of 
tax expenditure;
(g) Carry out periodic review of the continuance of existing tax 
incentives by assessing the extent to which they meet the 
stated objectives;
(h) Highlight the largest beneficiaries of tax incentives for invest-
ment by specific provision in a regular statement of tax expen-
diture, where possible;
(i) Collect data systematically to underpin the statement of tax 
expenditure for investment and to monitor the overall effects 
and effectiveness of individual tax incentives;
(j) Enhance regional cooperation to avoid harmful tax 
competition.
IV . Conclusion
Tax incentives can play a useful role in encouraging both domestic and 
foreign investment. The extent of their usefulness, and at what cost, 
depends upon how well the tax incentive programmes are designed, 
27 
OECD, Draft Principles to Enhance the Transparency and Governance of Tax 
Incentives for Investment in Developing Countries. Available from http://www.oecd.
org/ctp/tax-global/ transparency-and-governance-principles.pdf.

---

34
Design and Assessment of Tax Incentives
implemented and monitored. The present chapter has examined 
the costs and benefits of tax incentives and the relative advantages 
and disadvantages of different types of incentives, as well as set out 
important factors to consider in designing, granting and monitoring 
the use of tax incentives to increase investment and growth.
The questions of whether to use tax incentives and what form 
they should take are not easy to answer. The following, however, are 
some clear guidelines which may improve the chances of success of tax 
incentive programmes: the objectives of the tax incentive programme 
should be clearly set forth; the type of tax incentive programme should 
be crafted to best fit the objective; the Government should estimate 
the anticipated costs and benefits of the incentive programme in a 
manner similar to other types of tax expenditure analysis; the incentive 
programme should be designed to minimize the opportunities for 
corruption in the granting of incentives and for taxpayer abuse in 
exploiting the tax benefits; the tax incentive regime should have a 
definite sunset provision to allow for a determination of the merits of 
the programme; and the Government should be required at a specific 
time to assess the success and failure of each incentive programme.

---