Tax incentives in emerging economies
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 article brings closer the issue of tax incentives offered by developing countries in order to attract foreign capital. After presenting the natural order of deduction, which assumes that tax incentives enhance foreign direct investments and as such have a positive influence on economic growth, which – as a consequence – strengthens development, the author reverses the order of deduction and asks the question, whether such instruments are really efficient solutions in the process of strengthening the states’ competitive position. To answer the question, the author analyses chances and threats of including tax incentives into fiscal policy, identifies the main restrictions, and tries to list some solutions which can be helpful in the process of implementing such instruments into the tax systems of developing countries. The article also focuses on the main aspects of developing countries’ fiscal policy. It presents problems and challenges of the taxation area (both at the domestic and international level) which developing countries face in their attempts to increase tax revenues.
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