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OSCARO.COM : DATA MINING ET STRATEGIE DE TARIFICATION

Using Marginal Effective Tax Rates to Assess Tax Incentives in the WAEMU Charles Vellutini Managing Director, Economic Policy Analysis Vienna, 14 May 2012. OSCARO.COM : DATA MINING ET STRATEGIE DE TARIFICATION. The Issue.

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OSCARO.COM : DATA MINING ET STRATEGIE DE TARIFICATION

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  1. Using Marginal Effective Tax Rates to Assess Tax Incentives in the WAEMU • Charles Vellutini • Managing Director, Economic Policy Analysis • Vienna, 14 May 2012 OSCARO.COM : DATA MINING ET STRATEGIE DE TARIFICATION

  2. The Issue • WAEMU (West Africa) sought to evaluate (i) its tax harmonization policy across member countries ; (ii) the attractiveness of its tax system internationally • A plethora of tax regimes and tax incentives (General Tax Laws, Investment Code, Special Economic Zone, Mining Codes...) • Marginal Effective Tax Rates (METRs) account for the complexity of general tax laws and assert the corporate tax burden supported by corporation for each tax regime

  3. Result 1: Heavy TaxBurden: the standard regimesMETRs in the WAEMU

  4. The EffectiveCorporate Tax Burden – Standard regime (régime général)

  5. Result 2: Tax Incentives Are Not so Effective

  6. Investment codes (i): Multiplicity and dispersion of regimes

  7. Investment codes (ii): METRs only moderately attractive - and dispersed

  8. Free zones: Attractive METRs, but fueling general complexity of the tax system

  9. The Duration of Exemption Contributes to the Strength of TaxIncentives

  10. Illustration: Investment Codes in Benin

  11. The numberof taxproceduresispositivellycorrelatedwith intra-country METR dispersion

  12. Number of taxproceduresiscorrelatedwith time spent on taxation

  13. The cost of complexity Too many tax regimes in a given country – of which tax incentives  Too many tax procedures/ steps needed to access an attractive tax regime  Multiple opportunity for non-transparency • Negative impact on business climate • Shrinkage of tax base

  14. Tax incentives are part of a broader issue: making the tax system work

  15. Towards modern business taxation • Simplify the standard regime and make it more attractive… • Little or no discrimination across sectors • No distinction between new and old investment projects • No ex ante permits/authorizations • Use existing tax and accounting mechanisms • …To be able to eliminate « incentives » as separate specific mechanisms • Strategy being implemented by many countries (Ireland, France, etc.) 15

  16. Examples of instruments for simple, attractive business taxation • Reducing the corporate income tax • Tax credit on investment (ex France: Créditimpôtrecherche) • CreditVAT on investment goods with no actual payment of the VAT (ex Guadeloupe) = in effect a tax subsidy on investment

  17. Reform options in West Africa: combine a harmonized 25% CIT with investment tax credit METRs as a function of investment tax credit rate (Industry) Significant impact on all countries 17

  18. QUESTIONS?

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