1887

OECD Taxation Working Papers

Working papers from the Centre for Tax Policy and Administration of the OECD that cover the full range of the Centre’s work on taxation with the main focus on tax policy related issues.

English, French

Assessing tax relief from targeted investment tax incentives through corporate effective tax rates

Methodology and initial findings for seven Sub-Saharan African countries

Corporate tax incentives reduce investment costs for businesses, which may affect investment and location decisions. They apply through different designs and interact with countries’ standard tax systems, often making it difficult for tax policy makers and researchers to compare their generosity and assess their impacts across countries. This paper develops a methodology to calculate forward-looking corporate effective tax rates (ETRs) summarising tax relief from investment tax incentives into comparable indicators. It presents ETR indicators for seven Sub-Saharan African countries. Empirical results show that tax incentives substantially lower corporate taxation across these countries. On average, tax incentives reduce ETRs by 30% in the food and automotive industries compared to the standard tax treatment. ETRs often differ among taxpayers in a same sector and country - by up to 55%. The most generous tax treatment is typically offered within Special Economic Zones, where tax incentives can reduce ETRs to near zero.

English

Keywords: Tax incentives, Corporate taxation, Effective tax rates, FDI, Sub-Saharan Africa
JEL: H32: Public Economics / Fiscal Policies and Behavior of Economic Agents / Fiscal Policies and Behavior of Economic Agents: Firm; F21: International Economics / International Factor Movements and International Business / International Investment; Long-Term Capital Movements; H25: Public Economics / Taxation, Subsidies, and Revenue / Business Taxes and Subsidies; O14: Economic Development, Innovation, Technological Change, and Growth / Economic Development / Industrialization; Manufacturing and Service Industries; Choice of Technology
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