Tax incentives are used widely by governments as a tool to attract investment and influence investment decisions. When well designed and implemented, tax incentives can support investment policy goals, but the evidence on their performance in practice is mixed. Tax incentives are not always effective at achieving policy goals, often contributing to already high fiscal costs and introducing economic distortions and added complexity to tax systems. Tax incentives should deliver value for money; this is particularly important in developing and emerging economies, where both investment attraction and domestic revenue mobilisation are key goals. Better tax incentive policies should strike a balance between supporting needed investment while limiting costs and distortions, but specific reform options will differ across countries and contexts.
This practical guide complements existing policy guidance on tax incentives with actionable approaches and concrete steps for policymakers and practitioners, particularly in developing and emerging economies. Drawing on practical examples, it provides policymakers with tools to improve the efficiency and effectiveness of tax incentives. The guide offers tools and country examples across the policy lifecycle, identifying challenges and solutions at each stage from conception to tax incentive design, implementation, monitoring and evaluation and reform. The guide places particular emphasis on potential actions for countries facing resource constraints.
The guide is the product of a collaboration between the OECD Centre for Tax Policy and Administration (CTPA) and the Directorate for Financial and Enterprise Affairs (DAF). It complements the OECD’s longstanding work on improving investment climates and promoting fair, efficient and transparent tax systems. In particular, it builds on recent joint efforts to enhance evidence on the use of tax incentives through the OECD Investment Tax Incentives Database (ITID) and builds on the Platform for Collaboration on Tax (PCT) Tax Incentives Principles, and the work of PCT partner organisations, leveraging insights from the wider investment and tax policy communities. The guide also incorporates the insights from extensive engagement with policymakers, experts and external reviewers.
We are confident that this guide will serve as a practical resource for policymakers and practitioners worldwide to promote more effective tax incentive practices.
Manal Corwin,
Director for the Centre for Tax Policy and Administration,
OECD
Carmine Di Noia,
Director for Financial and Enterprise Affairs,
OECD