Consultation on Options for Low Income Countries’ Effective and Efficient Use of Tax Incentives for Investment

The G20’s Development Working Group (DWG) has invited four International Organizations (IMF, OECD, UN and World Bank) to write a report on options for low income countries’ effective and efficient use of tax incentives for investment. The underlying concern of the DWG is that low-income countries often face acute pressures to attract investment by offering tax incentives, which then erode the countries’ tax bases with little demonstrable benefit in terms of increased investment. The International Organizations have asked to use their shared expertise—based on many years of country interactions and analysis—to assist low income countries in making better use of tax incentives.

Drawing on recent country experiences and an extensive range of academic and other studies, the report aims to take a fresh look at tax incentive policies in low income countries. The aim is to develop principles for the design and governance of tax incentives and to provide guidance on good practices in these areas. Since much of the pressure to offer incentives stems from an awareness of those offered by other countries, the report also discusses options for international coordination to address the risk of mutually damaging spillovers from such tax competition. Finally, a separate background document reviews practical tools and models that can help assess the costs and benefits of tax incentives, which is essential to enhance transparency and support informed decision making.