Tax Policy and Reform for Foreign Direct Investment in Developing Countries

IMF Working Papers, July 1, 1990

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Tax Policy and Reform for Foreign Direct Investment in Developing Countries

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Bibliographic details

• Published: July 1, 1990
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451960273.001

Executive summary

• Study scope: analyzes tax factors in 21 developing countries that affect foreign direct investment flows.
• Categorization of tax factors:
  • issues associated with tax coordination
  • tax rates and rate structures
  • composition of the tax base
• Main findings:
  • Recent country actions show no clear pattern in attempts to increase tax coordination.
  • Many countries have reduced corporate tax rates and streamlined tax incentives.
  • Broad-based tax reform is lacking in most countries, leaving room for further reform to attract foreign investment.
  • Nontax factors are also addressed as instrumental in attracting foreign investment.

Key findings and observations

• Tax coordination:
  • No clear, consistent pattern across the 21 developing countries in efforts to increase tax coordination.
• Tax rates and incentives:
  • Many countries have reduced corporate tax rates.
  • Many countries have streamlined tax incentives.
• Tax base composition:
  • Broad-based tax reform is largely absent in most of the 21 countries studied.
• Nontax determinants:
  • Nontax factors can be instrumental in attracting foreign direct investment; the paper addresses these factors alongside tax issues.

Policy implications and recommendations (as framed by the paper)

• Consider comprehensive, broad-based tax reform as a potential avenue to attract more foreign direct investment.
• Re-evaluate the design and targeting of tax incentives given the observed trend toward streamlined incentives.
• Address tax coordination issues, recognizing the lack of a clear pattern among countries and potential gains from improved coordination.
• Complement tax policy reforms with measures addressing nontax factors important for investment attraction.

Publication and metadata

• Publication type: IMF Working Papers
• Title: Tax Policy and Reform for Foreign Direct Investment in Developing Countries
• Publication date: July 1, 1990
• Pages: 66
• Volume: 1990
• Issue: 070
• Series: Working Paper No. 1990/070
• DOI: https://doi.org/10.5089/9781451960273.001
• Stock No: WPIEA0701990
• ISBN: 9781451960273
• ISSN: 1018-5941
• Subjects: Balance of payments, Corporate income tax, Corporate taxes, Foreign direct investment, Income and capital gains taxes, Income tax systems, Tax incentives, Taxes
• Keywords: accelerated depreciation, capital gains tax, cash flow, Corporate income tax, Corporate taxes, fiscal drag, Foreign direct investment, historical cost, Income and capital gains taxes, Income tax systems, physical capital, rate of return, tax liability, tax rate, taxable income, wealth tax, Western Europe, withholding tax, WP

International Monetary Fund. "Tax Policy and Reform for Foreign Direct Investment in Developing Countries", IMF Working Papers 1990, 070 (1990).