2007.11.28 By Girls November 28th 2007 Tax Incentives & FDI.
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Transcript of 2007.11.28 By Girls November 28th 2007 Tax Incentives & FDI.
2007.11.28
By Girls
November 28th 2007
Tax Incentives & FDI
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
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1.Types of Tax Incentives
Principal Types Examples in China
Tax HolidaysAn exemption rate for a specified length of time
“两免三减半”中的“两免”
Reduced Corporation TaxA lower corporate income tax rate
外资: 30%+3% 经济特区、西部大开发
Investment AllowancesDeductions from taxable income
加速折旧加计扣除
Tax CreditsReductions to total tax paid
购置国产设备的抵免
Exemption from Indirect TaxesNo tax paid
进口免税出口退税
Table 1
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1.Types of Tax Incentives
From: Tax Incentives and Foreign Direct Investment (UNCTAD ,2000)
Table 2
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1.Types of Tax IncentivesTable 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
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2.Arguments For Tax Incentives
• More and more countries, irrespective of their stages of development, employ a wide variety of incentives to attract FDI.
FDI in Tax Haven
5 times
Regional Economic Groupings
Tax incentives
A decisive factor
in location decision
1994
1985
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2.Arguments For Tax Incentives
Incentive competitionIf a country’s neighbor offer tax incentives,
then it must also offer them to remain competitive.
Investment guideShift investment to industries or areas
e.g. incentives for investment in poor areas incentives for high-tech industries
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Hines (1999)
CIT:
reduction 1%
FDI:
increase 2%
2.Arguments For Tax Incentives
A decrease in CIT (Corporate Income Tax) results in a significant increase in FDI in some Eastern Asian countries.
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3.Arguments Against Tax Incentives
• revenue losses E.g. One state in the US an average sized new foreign firm : 1.2 % in real per capita revenuesa domestic firm : 0.1 % in real per capita revenues
1) loss for the host government• Revenue losses: developing countries face more severe
budgetary constrains
• Tax sparing: a transfer of revenue between countries
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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 investmentE.g. which project is better? (two hands)
Project A
Tax rate:33%
Before-tax return: 12%
After-tax return: 8%
Project B
Tax rate:10%(tax incentive)
Before-tax return: 10%
After-tax return: 9%
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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.
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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
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Case 2: Mekong Region
tax incentives Cambodia(20%)
Vietnam(32%)
Lao PDR(35%)
Sectors Certain industries: Hi-tech, infrastructures, environmental protectionCertain locations: remote areas
Tax holidays 8 years Negotiable
Reduced CIT rates 9% 25% 10% 15% 20% 20% 15% 10%
Allowances and credits Refunded CIT
Exemptions of indirect taxes
Import duty import duties , VAT import duty: 1% Export duty: 0%
Othersadditional incentives in export processing zones
negotiate on a case-by-case basis.
• Similar characteristics of tax incentives:
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Case 2: Mekong Region
A Empirical Analysis(2001): revenue lost in Vietnam1. US$76 million: 4,139 Foreign-invested Enterprises2. US$224 million(0.7% GDP):
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Case 2: Mekong Region
• the Asian financial crisis of 1997-1999 • country-specific factors• Tax incentives’ functions in early ages of companies
Do tax incentives boost FDI significantly?
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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.
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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.
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Case 3 : China
• 2002 年 , 我国已成为全球第一大直接投资吸收国。
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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: 1
5%
• 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%
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Case 3: China
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)
• 税收优惠成本
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Trends and Questions
• Harmony of Tax Regimes• Targeted Tax Incentive• Simple Tax System• The first-best solution
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Thank you !
Tax Incentives & FDI