United nations of tax incentives

Part II: Practical Aspects
Whether the case for a tax incentive is made on economic or 
social grounds or both, the detailed way in which the case is made 
is critical in terms of translating the incentive into law. It is also 
critical in terms of reviewing the success of the incentive during its 
operational phase.
1 .3 
Detail policy and draft (addressing the points below)
The broad economic and social case for a particular tax incentive 
should then be detailed addressing in particular the issues that must 
be faced when translating the policy into law. These are the matters 
referenced in the rest of the 
Checklist
and means that the 
Checklist
should be consulted at the point the policy is developed and not just at 
the time that policy is to be translated into law.
1 .4 
Review policy periodically (using reporting 
requirements below)
No tax incentive should be considered permanent. By definition a 
tax incentive is a special treatment of particular taxpayers which is 
justified by reference to a particular (beneficial) outcome. If at any 
time the tax incentive does not produce that beneficial outcome, the 
justification for the special treatment falls away and the tax incentive 
should be removed or adjusted.
This means that all tax incentives require constant review and 
evaluation to ensure that they are producing the results that justify 
them. How often tax incentives should be reviewed depends on the 
particular circumstances, but as a rule of thumb it should be years 
and not decades (long term projects such as infrastructure may be a 
special case).
2 . 
Responsible/administering authority
2 .1 
Ministry of Trade/Investment Board, Ministry of Finance, 
Tax administration
As noted, in developing policy for a tax incentive there needs to be 
an allocation of roles between various government stakeholders. In 
addition, the tax incentive needs to be administered and monitored 
on an ongoing basis and roles need to be assigned in this regard. 

---

44
Design and Assessment of Tax Incentives
Inevitably, the tax administration will be responsible for administering 
tax incentives.
However, depending on the manner in which the incentive is 
structured it may need to coordinate closely with other government 
stakeholders such as sector ministries. For example, access to a tax 
incentive may be dependent on the taxpayer holding a licence or 
qualifying in some other manner under sector legislation. The tax 
administration should not be involved in determining the qualification 
other than to check with the sector ministry that the requirements 
have been met.
In most cases, it is obvious which is the appropriate government 
ministry or agency for determining qualification for an incentive, for 
instance with respect to natural resources, energy, telecommunications, 
education etc. Problems are more likely to arise when the tax incentive 
requires more than just checking a qualification under sector legislation. 
For example, access to a tax incentive may depend on meeting certain 
targets, such as turnover, employees, emissions reductions, etc.
There can be disputes as to which authority is to check whether 
the targets are met. The sector regulator may believe this is a matter 
for it to check and verify and that the tax administration should 
simply accept that verification. The tax administration may take the 
view that it is responsible for administering tax laws and so it must 
independently verify that targets have been met.
As a matter of law, this sort of issue is often regulated by the 
legal manner in which the tax incentive is implemented. For example, 
if the tax incentive is implemented through the tax law, which is most 
common, it will be the tax administration that must determine these 
additional criteria/targets. If the tax incentive is implemented through 
sector legislation it may be the sector regulator that determines the tax 
incentive.
Nevertheless, in either case tensions can arise as to the extent 
to which the tax administration is required to follow the views of the 
sector regulator. It is important to pay attention to this potential for 
tension when designing and drafting a tax incentive and provide clear 
role allocation.

---

45