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Why More Clarity Is Needed On Investment Incentives

Tax incentives are rarely consolidated under one authority in developing countries, by Alex Irwin-Hunt, FDI Intelligence

Incentives are a key part of investment promotion. Yet many developing countries are too opaque about the types of incentives they offer and how investors can benefit from them.

Greater transparency on incentives is needed. It would enable better analysis of their effectiveness and help minimize negative impacts like foregone tax revenues. Clearer, accessible information on incentives could also help investors make quicker decisions and countries attract untapped investment opportunities.

This is laid out in detail by an OECD policy paper published on November 8. Researchers collected new data on 426 tax and non-tax incentives offered in 15 developing countries in the Middle East, North Africa, sub-Saharan Africa and Southeast Asia. This was analyzed alongside data on corporate income tax (CIT) incentives in more than 58 developing countries.

The research shows one challenge is that too many agencies are involved in granting and administering investment incentives. The majority (80%) of the 58 developing countries offer at least one CIT incentive through the Ministry of Finance. But CIT benefits were also offered in almost half of the countries by investment promotion agencies (IPAs), and more than a quarter through special economic zone authorities or other ministries.


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