Under modern economies, the tax plays a vital role in financing the general budget of the State and there are many indicators that can be used to direct policies through the State budget to achieve reform in the tax system to achieve budgetary objectives in finance and achieve economic and social goals
country’s tax regime is a key policy instrument that may negatively or positively
influence investment. Tax Policy in the PFI relates to the formulation of a tax
strategy which is supportive to investment. It covers the advantages and
disadvantages of alternative tax policy choices in meeting the twin goals of offering
a tax system attractive to investment, while at the same time raising revenues to
support the key pillars of a business-enabling environment, such as infrastructure. A
poorly designed tax system, where the rules and their application are non-
transparent, overly complex or unpredictable, may discourage investment adding to
project costs and uncertainty. Systems that leave excessive administrative
discretion in the hands of tax officials tend to invite corruption and undermine good
governance objectives fundamental to securing an attractive investment
environment. Policy makers are therefore encouraged to ensure that their tax
system imposes an acceptable tax burden that can be accurately determined, and
which keeps tax compliance and tax administration costs in check.
This chapter seeks to assist countries in understanding the bottlenecks within their
current tax system and to propose changes to improve the efficiency of the system
in terms of its ability to mobilise revenue on the one hand and attract the right kind
of investment on the other. It identifies the nine most important questions relevant
for judging the effectiveness of a country’s tax policies and practices and offers
specific guidance in formulating a tax policy strategy which is supportive to
investment. The nine PFI questions on tax policy relate to:
the consistency of a country’s tax burden with its broader development
objectives;
an evaluation of the actual tax burden on domestic profits;
a comparison of the actual versus the target tax burden;
understanding the potential tax effects on investment;
an evaluation of tax distortions to investment;
the determination of taxable income;
accounting for unintended tax incentive effects;
What is in your research defined like tax? Are we talking macroeconomic tax equation T = tY? Or we discuss Tax instruments Like corporate tax, vat, income tax, etc. ....
A good tax policy plays a crucial role in economic growth through raising adequate revenue for development, ensuring economic stabilization, help in income redistribution and efficient allocation of resources of that country.
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