Tax Incentives and FDI Performance

Transcription

1 Organisation for Ecomic Cooperation and Development Tax Incentives and FDI Performance Ana Cebreiro Tax Ecomist, CTPA MENAOECD Investment Programme Meeting of Working Group 3 (Tax Policy for Investment) of the MENAOECD Investment Programme 1920 June 2007, Cairo Centre for Tax Policy and Administration

2 Major Obstacles to Investment Strategic investors Political Stability 18% 12% 6% 35% Ecomic Stability Legal framework Bureaucracy 24% 24% 29% 35% Tax issues Transparency Corruption Financial System Source: OECD(2003): from Investors Survey in SEE 2

3 3 Important Tax Policy Factors for Investment

4 Pros and cons of main tax incentives Tax Holidays Reduction of CT rate Accelerated capital allowances PROS Relative low compliance and administrative costs Attractive for mobile investors Easy to administrate Helps with liquidity constraints CONS Only targeted to new investment Deny certain deductions Tax planning opportunities Discriminate against other businesses Effects on debt finance ( cost) and capital allowances ( PNV) Tax planning opportunities Advantages only with loss carryforward provisions Investment Tax Credits Reduced taxes on dividends and interest Large impact on ETR at lower revenue cost Incentives for coinvestment between domestic and foreign investors Only targeted to new investment Large impact with shortlived assets Taxshifting 4

5 Main tax incentives used in the MENA region, 2004 Tax holidays (years) Reduced CIT Exemption CIT for exports Accelerated depreciation Locationbased incentives Exemption from indirect taxes/ duties Export/ free zones Algeria 10 Bahrain manufacturers Egypt for exports in specific zones Jordan 212 sector specific sector and location specific Kuwait 10 on production items Leban 10 location specific sector specific Morocco 5 exports and sector specific export and sector specific Oman some imported goods Qatar on particular production inputs Saudi Arabia 10 for industrial projects Syria 5 on production inputs Tunisia 10 sector specific exports only UAE in free zones Yemen 7 on project fixed assets 5 Source: OECD (2005), Investment climate statements of the US State Department, United Nations (2000), and National countries investment and tax laws.

6 Effectiveness of tax incentives Other Regions Uganda (1997) Elimination of tax holidays 30 % CIT, generous capital allowances and unlimited losscarry forward Results: 1ppt ratio investment to GDP, 70% in FDI inflows and tax revenue by 1% of GDP Indonesia (1984) CIT: 45% 35% Elimination of selective tax incentives (tax holidays, preferential rates, special investment allowances and selective accelerated depreciation) Results: FDI inflows (in value terms) but quickly after

7 Effectiveness of tax incentives (cont d) MENA Morocco (2006) Introduction of Tax Expenditure Report Results: Positive but decelerated effect of tax incentives on private investment Egypt (2005) New Income Tax Law: CIT 40% 20% Elimination of income tax exemptions Unified corporate tax rates across industries Results: FDI flows almost double in value terms Tunisia, FIAS Study (2002) : effectiveness of incentives due to distortions (in access, among assets and across sectors), duplication of instruments to reduce CT and ncoherence between the multiple system of incentives and other aspects of ecomic policy Jordan, Institute for International BusinessUniversity of Toronto Incentives system too complicated and inefficient Not success in attracting investments and eroding tax revenues 7

8 FDI Performance Index Egypt Jordan Morocco Tunisia Uganda Source: Own elaboration using FDI Performance Index from World Investment Report 2006 UNCTAD 8

9 Statutory Corporate Tax Rate and Inbound FDI Performance Index, 2005 Performance Index Top CIT Rate Yemen Libya Kuwait Saudi Arabia Algeria Syria Oman Tunisia Egypt* Qatar Morocco Bahrain Jordan UAE Leban 9 Source: OECD (2005), FDI Performance Index from World Investment Report 2006 UNCTAD, Investment climate statements of the US State Department, and National countries investment and tax laws.

10 Overview of tax characteristics affecting FDI in MENA countries as host countries Nonresident withholding tax Capital Cost Write offs Loss carry forward (years) Transfer pricing rules Thin capitalisation rules Country Top CIT Rate dividends interests royalties Algeria ? acc Bahrain Egypt acc 5 Jordan acc indefinitely Kuwait 55 Leban Libya 40 Morocco acc 4 Oman 30 Qatar 35 Saudi Arabia acc Syria 45 Tunisia acc 4 UAE acc indefinitely Yemen 35 4 Source: OECD (2005), Investment climate statements of the US State Department, United Nations (2000), and National countries investment and tax laws. 10

11 Compliance time (hours), Jordan Leban Egypt* Algeria Morocco Tunisia MENA OECD Source: : Doing business, World Bank,

12 Conclusions Wide range of incentives in MENA countries Investors prefer transparency, simplicity, stability and certainty in application of tax law and in tax administration Tax incentives t very effective attracting investment Best practice: discourages use of incentives in favour of reduced CTI rate on broad base When tax incentives offered, need of reviewing design and assessing effectiveness 12

13 Organisation for Ecomic Cooperation and Development Thank you for your attention Meeting of Working Group 3 (Tax Policy for Investment) of the MENAOECD Investment Programme 1920 June 2007, Cairo Centre for Tax Policy and Administration