One possible explanation for the difficulty in controlling the budget is that a major component of spending—tax expenditures—receives privileged status. It is treated as tax cuts rather than as spending. This training explores the implications of that classification and illustrates how it can lead to higher taxes, larger government, and an inefficient mix of spending (too many tax expenditures). The training then shows alternative budgeting approaches that would explicitly incorporate and measure tax expenditures. It concludes by analysing ways to control tax expenditures (and other spending) and the special challenges presented by tax expenditures

Emerging economies have introduced tax incentives for various reasons. In some countries in transition, such instruments may be seen as a counterweight to the investment disincentives inherent in the general tax system. In other countries, the incentives are intended to offset other disadvantages that investors may face, such as a lack of infrastructure, complicated and antiquated laws, bureaucratic complexities and weak administration. The fundamental purpose of taxation is to raise revenue effectively, through measures that suit each country’s circumstances and administrative capacity. In fulfilling the revenue function, a well designed tax system should be efficient in minimizing the distortionary impact on resource allocation, and equitable in its impact on different groups in society.

Training Objectives

• Identify the various ways of measuring tax expenditure
• Understand tax expenditure reporting
• How to report on tax expenditure
• Participants are able to analyze chances and threats of including tax incentives into fiscal policy.
• Identify the main restrictions,
• list some solutions which can be helpful in the process of implementing such instruments into the tax systems of developing countries
• Identify ways through which tax incentives can attract investors
• Identify the various costs associate with tax incentives

Who Can Attend?

Tax planners, tax practitioners, economists, statisticians, policy formulation personnel among others.

Course Outline

Part A: Tax Expenditure

• Introduction to Tax Expenditures & It’s Importance
• Trends in Tax Expenditure
• Measuring Tax Expenditures
• Largest Tax Expenditures
• Issues in Measuring Tax Expenditure
• Budgeting for Tax Expenditures
• The Implication of Ignoring Tax Expenditures in the Budget
• Reporting on Tax Expenditure
• Information that the Government Should Include in Budget Documents & Other Reports on Tax Expenditures
• Managing the Effects of Tax Expenditure on the National Budget

Part B: Tax Incentives

• Overview of Key concepts and Issues of Tax Incentives
• Objectives of Tax Incentives:
• Regional investment
• Sectoral investment
• Performance enhancement
• Classification of Tax Incentives
• Benefits and Costs of Tax Incentives
• Design and Administration of Tax Incentives
• Principles to Enhance the Transparency and Governance Of Tax Incentives For Investment In Developing Countries
• Assessing the Effectiveness and Economic Impact of Tax Incentives