United nations of tax incentives

Part II: Practical Aspects
The tax administration is inevitably responsible for admin-
istering taxes and so tax incentives. The tax administration is most 
always subject to instruction of MoF, even if the tax administration is 
a semi-autonomous body.
The tax administration is typically instructed to administer 
tax laws, laws that are under the direction and control of the MoF. 
It is clearly problematic to incorporate a tax incentive in a law, such 
as sector legislation, that is not under the direction and control 
of the MoF. It may be that the tax administration simply has no 
authority to administer such a provision, for instance because the tax 
administration’s establishment law only authorises it to administer tax 
laws (and not tax provisions in sector laws).
The same issue arises with respect to supporting secondary 
legislation, such as regulations. The tax administration is familiar with 
administering regulations sponsored by the MoF under tax laws, but it 
is not clear what the responsibility of the tax administration would be 
regarding administering regulations made by the sector ministry with 
respect to a tax incentive incorporated in sector law. More confusing 
would be regulations supported by the MoF under the tax law with 
respect to a tax incentive incorporated in sector legislation.
Sometimes a government may implement a tax incentive 
through private agreement with the taxpayer. This can raise similar 
issues with respect to the responsibility of the tax administration 
regarding administration of the incentive as when tax incentives are 
implemented in sector legislation. Residually, the tax administration 
may have no authority to give effect to government agreements that 
are inconsistent with the tax laws that the tax administration is 
responsible for administering.
One issue is whether or not the government agency that 
purports to conclude the agreement has authority to affect a tax law 
if the tax law does not authorise the agreement. However, even if the 
agreement is binding on the government that does not mean the tax 
administration has authority to give effect to it. This can lead to the 
unfortunate risk that the tax administration legally collects taxes that 
are in breach of a government agreement, rendering the government 
liable for damages for breach of contract in an equivalent amount.

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48
Design and Assessment of Tax Incentives
The point is that there must be clear and forward planning 
with respect to the legal implementation of a tax incentive. It is best 
to implement tax incentives in the tax law in question, perhaps in a 
dedicated division of the tax law dealing with concessions and other 
temporary provisions.
If there is to be a separate law dealing with tax incentives, 
this should clearly be under the control and direction of MoF and 
included on the list of tax laws that the tax administration is required 
to administer. If sector legislation or government agreements are 
to have an impact on tax legislation (typically not a good practice) 
then care needs to be taken to ensure that the tax law recognises 
these adjustments and requires the tax administration to give 
effect to them.