Transcript Tax Incentive & FDI

Tax Incentives & FDI
By Girls
November 28th 2007
2007.11.28
Tax Incentives & FDI
Evidences
•
•
•
•
Types of Tax Incentives
Arguments For Tax Incentives
Arguments Against Tax incentives
Trends and Questions
Cases
• Ireland
• Mekong Region
• China
2007.11.28
1.Types of Tax Incentives
Table 1
Principal Types
Examples in China
Tax Holidays
An exemption rate for a specified length of time
“两免三减半”中的“两免”
Reduced Corporation Tax
A lower corporate income tax rate
外资：30%+3%
经济特区、西部大开发
Investment Allowances
Deductions from taxable income
加速折旧
加计扣除
Tax Credits
Reductions to total tax paid
购置国产设备的抵免
Exemption from Indirect Taxes
No tax paid
进口免税
出口退税
2007.11.28
1.Types of Tax Incentives
Table 2
From: Tax Incentives and Foreign Direct Investment
(UNCTAD ,2000)
2007.11.28
1.Types of Tax Incentives
Table 3: Relative Pros and Cons of Different Types of Tax Incentives
Types
Pros
Cons
•Reduce tax burden
•Reduce tax revenue
Tax Holidays
•Avoid contact with tax
administration
•Provide benefits
•Short-run investment
•Create distortions between old and
new firms
•Revenue costs are not transparent
Reduced CT
•Revenue costs are transparent
•Attract investments in the long
run
•Race-to-the-bottom
•Transfer pricing
•Tax sparing
Investment
Allowances and Tax
Credits
•Targeted to certain investments
to meet government’s plan
•Revenue costs are transparent
•Administrative burden
•Macroeconomic environments
•Well-developed accounting systems
Exemption from
Indirect Tax
•Avoid contact with tax
administration
•VAT (inputs & outputs)
•Prone to abuse
2007.11.28
2.Arguments For Tax Incentives
• More and more countries, irrespective of their stages of
development, employ a wide variety of incentives to attract
FDI.
Regional Economic Groupings
FDI in Tax Haven
Tax incentives
5 times
A decisive factor
1985
in location decision
1994
2007.11.28
2.Arguments For Tax Incentives
Investment guide
Shift investment to industries or areas
e.g. incentives for investment in poor areas
incentives for high-tech industries
Incentive competition
If a country’s neighbor offer tax incentives,
then it must also offer them to remain competitive.
2007.11.28
2.Arguments For Tax Incentives
A decrease in CIT (Corporate Income Tax) results in a
significant increase in FDI in some Eastern Asian
countries.
Hines (1999)
CIT:
reduction 1%
FDI:
increase 2%
2007.11.28
3.Arguments Against Tax Incentives
1) loss for the host government
• Revenue losses: developing countries face more severe
budgetary constrains
• Tax sparing: a transfer of revenue between countries
• revenue losses
E.g. One state in the US
an average sized new foreign firm :
1.2 % in real per capita revenues
a domestic firm :
0.1 % in real per capita revenues
2007.11.28
3.Arguments Against Tax Incentives
2) “race to the bottom” competition
•
•
Most notable in Asia
Tax competition within the region, but ineffective to the region as a whole
3) Reducing the efficiency of investment
E.g. which project is better? (two hands)
Project A
Project B
Tax rate:33%
Tax rate:10%(tax incentive)
Before-tax return: 12%
Before-tax return: 10%
After-tax return: 8%
After-tax return: 9%
2007.11.28
3.Arguments Against Tax Incentives
4) investors of the “wrong kind”
•
•
•
•
Export-oriented companies---but: transfer pricing, tax sparing
Tax-sensitive projects---but: how to select
If: short-term profitable projects
If: the most profitable projects
5) Administrative burden
• Discretionary regimes: case-by-case evaluations
• Complicated tax system: need more effective to cover the costs of
implementing them and produce a net overall benefit.
• corruption problems: opportunities for officials to obtain kickbacks or
political favors in exchange for granting tax incentives.
2007.11.28
Cases 1: Ireland
•
•
Cons: small population
low levels of local capital
few natural resources
Pros: a low tax rate
the English language
EU membership
a highly educated population
2007.11.28
Case 2: Mekong Region
• Similar characteristics of tax incentives:
Cambodia
(20%)
tax incentives
Sectors
8 years
9%
Allowances and credits
Exemptions of indirect
taxes
Others
Lao PDR
(35%)
Certain industries: Hi-tech, infrastructures, environmental protection
Certain locations: remote areas
Tax holidays
Reduced CIT rates
Vietnam
(32%)
25% 10% 15% 20%
Negotiable
20% 15% 10%
Refunded CIT
Import duty
import duties , VAT
import duty: 1%
Export duty: 0%
additional incentives
in export processing
zones
negotiate
on a case-by-case basis.
2007.11.28
Case 2: Mekong Region
A Empirical Analysis(2001): revenue lost in Vietnam
1.
2.
US$76 million: 4,139 Foreign-invested Enterprises
US$224 million(0.7% GDP):
2007.11.28
Case 2: Mekong Region
Do tax incentives boost FDI significantly?
•
•
•
the Asian financial crisis of 1997-1999
country-specific factors
Tax incentives’ functions in early ages of companies
2007.11.28
Case 2: Mekong Region
Which incentives are more effective?
FDI/GDP
Tax incentives/GDP
Regional cross-country evidence also provides little support for the
notion that special tax incentives have attracted significant FDI.
2007.11.28
Case 2: Mekong Region
Which incentives are more effective?
FDI/GDP
Standard corporate tax rate on FIE
regional cross-section evidence does indicate that low standard CIT
rates may have a positive effect on FDI.
2007.11.28
Case 3 : China
• 2002年,我国已成为全球第一大直接投资吸收国。
2007.11.28
Case 3 : China
• 我国企业平均税负：
• 学者估计
我国全社会平均企业所得税税负率约为15%，
国有企业：20%，外资企业：10%，民营企业：15%
• 社科院财贸所报告：
内资企业：25% ；外资企业13%
• 财政部：
内资企业：25％：外资企业：15％
2007.11.28
Case 3: China
• 税收优惠成本
1. 世界银行：
• 我国1995 年外商投资企业所得税税收优惠损失收入约660 亿元人民
币，占当年G D P 的1.2%。
• 我国以损失50 亿美元的财政收入（按税收优惠占G D P 的1% 计算）
来换取了额外30 亿美元F D I 的流入
2. 财政部与美国MacroSys 公司合作开发了一套企业所得税微观模拟模型:
• 我国2000 年、2001 年、2002 年涉外税收优惠成本:687.61、993.48、
925.04 亿元。
3. 国内各财税专家和研究机构:
• 财政部：我国涉外税收激励的成本分别：
2000 年、2001 年、2002 年、2003年、2004 年、2005 年
217.43 、 341.72 、 410.69、 470.25 、 621.68 、 765.13 （亿元）
2007.11.28
Trends and Questions
•
•
•
•
Harmony of Tax Regimes
Targeted Tax Incentive
Simple Tax System
The first-best solution
2007.11.28
Tax Incentives & FDI
Thank you !
2007.11.28