Incen%ves The Good, the Bad and the Ugly

Transcription

1 Incen%ves The Good, the Bad and the Ugly Vale Columbia Center Interna%onal Investment Conference New York, Nov 13-14, 2013 Sebas%an James The World Bank Group 1

2 Prevalence of Tax Incen%ves around the Number of Countries Surveyed Tax holiday/ Tax exemp: on Reduced Tax rate World Investm ent allowan ce/tax credit VAT exemp:o n/ reduc:on R&D Tax Incen: ve Super- deduc :ons SEZ/ Free Zones/ EPZ/ Freeport Discre:o nary process East Asia and Pacific 12 92% 92% 75% 75% 83% 8% 83% 25% Eastern Europe and Central Asia 16 75% 31% 19% 94% 31% 0% 94% 38% La:n America and the Caribbean 24 75% 29% 46% 58% 13% 4% 75% 29% Middlea East and North Africa 15 73% 40% 13% 60% 0% 0% 80% 27% OECD 33 21% 30% 61% 79% 76% 18% 67% 27% South Asia 7 100% 43% 71% 100% 29% 57% 71% 14% Sub- Saharan Africa 30 60% 63% 73% 73% 10% 23% 57% 47% Tax Incen:ves in one form or the other are prevalent in all regions of the World 2

3 Incen%ves Framework The Benefits and Costs of an Incen%ve Policy Revenue rise due to increased investment Social benefits from increased investment Lost revenue from investments that would have been made anyway + > + Indirect cost of incen%ves Social Benefits include cleaner environment, beyer skills, beyer health, etc. 3

4 Tax Expenditures around the world 10.0% Tax Expenditure as % of GDP 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% The cost of tax incen:ves are non- trivial in many countries 4

5 Impact of Investment Incen%ves in West & Central Africa BEN BFA CAF CIV FDI flow current USD CMR COG GAB MLI NER SEN TCD TGO year FDI flow current USD change inv climate Graphs by country_code 5

6 Finding in OECS Case Study Tourism Incen:ves ñ Tourism Investment ñ 800 Tourism FDI (Thousand Eastern Caribbean dollars) 700 An%gua ECCU Source: James and Van Parys,

7 Fiscal Policy Effectiveness and the Investment Climate FDI as % of GDP SRB BEL HKG BGR HUN Almost no impact of GEO NLD lowering Effec%ve Tax SGP ISL Rates on FDI in low IC MDG countries CHEJOR HRVIRLVNMKAZ LVA EGYCHL ZMB FJI AUT CAN TCD JAM LSO UKR CRI GBR ROM GHA FRA MUS POLCZE SLE SVK MYS FINTUN PER AUS DNK THA ESP CHN KEN NGA UGA TUR MARTZA PAK RUS RWA ZAF MEXPRT NZL SWE ARG NOR DEU USA BGD BOL IND BRA GRC ETH IDN ITA UZB ECU BWAIRN JPNKOR METR Source: James and Van Parys, 2009 High IC countries Trend High IC countries Low IC Countries Trend Low IC Countries 7

8 Investors who would NOT have invested without tax Incen%ves 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Jordan Mozambique Serbia Kenya Nicaragua Non- Exporters Exporters 8

9 US Outbound FDI and METR in host countries LUX HKG HKG TUR TUR CHL IRL SGP SGP NLD BEL ISR CAN MEX CHE CRI THAMYS VEN CAN AUSGBR CZE MYS DNK NOR AUS BRA POL ESP SWE IDN DEU NOR PHL AUT ZAF HUN MEX GRC NLD CHN FIN ITA JPN IDN PRT RUS CZE CHN BEL FIN DNK ECU GBR GRC ZAF ISR THA SWE SAU DEU PHL ESP AUT ITA CRI VEN RUSJPN IND FRA COL COL FRA ARG ARG METR manufacturing as a % of GDP Fitted values mining as a % of GDP Fitted values 9

10 Typology of FDI and response to Tax Incen:ves Type of Investment Natural Resource/ Skill- seeking FDI Market- seeking FDI Strategic Asset- seeking FDI Efficiency- seeking FDI Factors that drive it Loca%on of Natural Resources/Skills Market poten%al - Market dimensions - Income per- capita - Customer specific preferences - Kind of goods and services to be provided Acquiring Strategic Assets - Brands and Market posi%oning - Know- how - Technology - Distribu%on Networks - Human Capital Lower Costs - Mostly export oriented - Availability of skills at a Low cost skills - Close to markets - Low reloca%on costs Response to investment incen:ves Low response. FDI driven primarily by non- tax factors. Low response. Level playing field between firms is cri%cal (same tax system for all compe%tors). Low response. FDI is driven by the loca%on of the asset. However lower taxes on capital gains reduces the costs of the transfer of these assets. High response to tax incen%ves. Firms are expected to compete globally, hence the lower the costs, the beyer their ability to compete globally. 10

11 Cost of discre%on in gran%ng tax incen%ves Average delay in days for gran:ng of incen:ves Countries Surveyed Answer to the ques:on, Approximately how many days/weeks/months were required to obtain the incen:ves over and above the :me needed for standard registra:on and start- up procedures? Discre:on in alloyng the tax incen:ve? Serbia 6 No Rwanda 10 No Tanzania 15 No Uganda 18 No Jordan 21 Yes Nicaragua 42 No Burundi 47 Yes Kenya 63 Yes Guinea 80 Yes Tunisia 95 Yes 11

12 Cost v. Benefit of Tax Incen%ves - Jobs Country Surveyed Marginal Investors as a % of total Investors Jobs Created by Marginal Investors as a % of total jobs created (%) Jobs by Marginal Investors (%) of Marginal Investors Burundi 23% 19% - 4% Guinea 8% 13% 5% Jordan 30% 21% - 9% Kenya 39% 42% 3% Mozambique 22% 15% - 7% Rwanda 2% 1% - 1% Serbia 29% 31% 2% Tanzania 9% 16% 7% Thailand 19% - - Tunisia 42% 35% - 7% Uganda 7% 7% 0% Vietnam