This manual is a contribution to the rich body of literature on tax expenditures and aim to inform policymakers and policy debates on tax expenditures reform. In doing so, it builds on the existing knowledge and endeavors to provide a comprehensive guidance on key aspects of tax expenditure analysis. Considering that cross-country comparability of tax expenditure estimates is challenging due to differences in benchmarking, this manual specifically aims to provide guidance on how to benchmark some of the most common features of a tax system. This manual should be seen as a contribution to the vast ocean of knowledge on tax expenditures, rather than an exhaustive guide to all their complexities. This guidance endeavors to assist policy practitioners, especially in developing countries, in navigating and understandingtax expenditure issues.
Authors
- Citation
- “ World Bank . 2024 . Tax Expenditure Manual . © Washington, DC: World Bank . http://hdl.handle.net/10986/41871 License: CC BY-NC 3.0 IGO . ”
- Collection(s)
- Other ESW Reports
- DOI
- https://doi.org/10.1596/41871
- Identifier externaldocumentum
- 34352012
- Identifier internaldocumentum
- 34352012
- Pages
- 110
- Published in
- United States of America
- Report
- 192075
- Rights
- CC BY-NC 3.0 IGO
- Rights Holder
- World Bank
- Rights URI
- https://creativecommons.org/licenses/by-nc/3.0/igo
- UNIT
- EFI-MTI-Macro/Fiscal-Tax (EMFTX)
- URI
- https://hdl.handle.net/10986/41871
- date disclosure
- 2024-07-15
- region geographical
- World
- theme
- Tax policy,Economic Policy,Fiscal Policy
Files
Table of Contents
- ACKNOWLEDGEMENT 3
- PREFACE 4
- CONTENTS 5
- EXECUTIVE SUMMARY 11
- Tax expenditures are revenue losses attributable to special provisions in the 11
- The concept and reporting of tax expenditures have evolved significantly 12
- CHAPTER 1 DEFINING TAX EXPENDITURES 13
- 1.1 WHAT ARE TAX EXPENDITURES 13
- 1.2 14
- 1.3 DEFINING TAX EXPENDITURES 16
- 1.4. CLASSIFICATION OF TAX EXPENDITURES 17
- CHAPTER 2 GLOBAL TRENDS IN TAX EXPENDITURE 21
- 2.2 TAX EXPENDITURES THE BIG PICTURE 21
- LIMITATIONS OF TAX EXPENDITURE STATISTICS 25
- CHAPTER 3 BENCHMARK TAX SYSTEM 26
- 3.1 BACKGROUND 26
- 3.2 DEFINING THE TAX SYSTEM 26
- 3.3 DEFINING THE BENCHMARK TAX SYSTEM 26
- 3.4 BENCHMARKING APPROACHES 27
- 3.5 NEGATIVE TAX EXPENDITURES 29
- 3.6 CHOICE OF BENCHMARK TAX SYSTEM 30
- 3.7 IDENTIFYING STRUCTURAL RELIEFS 31
- 3.8 BENCHMARKING OF COMMON TAX PROVISIONS 33
- A persons annual income is the value of what she could consume in that year while keeping her wealth constant 34
- Though SHS income base does not provide for a basic income exemption limit for taxability of personal income it should be treated as a structural relief. 35
- The progressive PIT rate structure should be treated as part of the BTS 35
- Benchmark tax rate for dividends and interest should be based on combined assessment of PIT and CIT rates. 36
- Simplified tax regime or presumptive taxation for small unincorporated businesses should be treated as a structural relief 36
- Standard deduction provided to salaried taxpayers including pensioners which is generally in lieu of itemized deductions should be considered outside the BTS 36
- The two alternate systems of EET or TEE should be used as a structural relief for taxation of pension contributions or benefits. 38
- Thus exemption of investment income should be treated as outside the BTS or a tax expenditure. 39
- Therefore the standard depreciation rates adopted in the tax law should be considered as structural relief on grounds of administrative efficiency. 41
- The standard rate of CIT which is generally applicable to companies or the highest rate in case of a progressive CIT rate schedule should be treated as part of BTS 41
- As per comprehensive income base indefinite loss 41
- VAT registration threshold should be treated as a structural relief. 42
- Hence the policy of zero-rated exports should be considered as part of the benchmark. 43
- VAT exemptions on imported goods that are used by businesses for intermediate consumption to produce goods or services should be treated as a structural relief 43
- Therefore any deviations from the standard customs tariff rate accounted for under international agreements should be considered as a structural relief. 44
- CHAPTER 4 MEASUREMENT OF TAX EXPENDITURES 45
- 4.1 APPROACHES TO MEASUREMENT 45
- 4.2 TOOLS FOR TAX EXPENDITURE MEASUREMENT 46
- CHAPTER 5 REPORTING OF TAX EXPENDITURES 56
- 5.1 NEED FOR TAX EXPENDITURE REPORTING 56
- 5.2 GLOBAL TRENDS IN TAX EXPENDITURE REPORTING 56
- Union Economique et Monétaire Ouest Africaine Directive 57
- 5.3 REPORTING FORMAT 60
- CHAPTER 6 EVALUATION OF TAX EXPENDITURES 62
- 6.1 RATIONALE FOR TAX EXPENDITURE EVALUATION 62
- 6.2 PREPARING FOR EVALUATION 65
- 6.3 FRAMEWORK FOR EVALUATION 66
- 6.4 PRIORITIZING MEASURES FOR EVALUATIONS 69
- 6.5 CONDUCTING EVIDENCE-BASED EVALUATIONS 70
- CHAPTER 7 COST-BENEFIT ANALYSIS 71
- In this chapter we build on the previous chapter on evaluation of tax expenditures and discuss how tax expenditures can be evaluated using Cost-Benefit Analysis or Cost-Effectiveness Analysis. 71
- 7.1 WHAT IS COST-BENEFIT ANALYSIS 71
- 7.2 COST ASSESSMENT 72
- 7.3 MEASUREMENT OF BENEFITS EFFECTIVENESS 76
- 7.4 COST-BENEFITS EFFECTIVENESS INDICATORS 82
- CHAPTER 8 GOVERNANCE OF TAX EXPENDITURES 83
- 8.1 KEY CHALLENGES 83
- 8.2 FRAMEWORK FOR GOVERNANCE 83
- 8.2.9 86
- 8.3 ROLE OF INSTITUTIONS 89
- CHAPTER 9 FRAMEWORK FOR TAX EXPENDITURE REFORM 92
- 9.1 POLITICAL ECONOMY OF TAX EXPENDITURES REFORM 92
- Guidelines on the Tax Treatment of Government-to-Government Aid Projects 94
- 9.2 FRAMEWORK FOR TAX EXPENDITURES REFORM 95
- 9.3 MANAGING TAX EXPENDITURES REFORM 97
- 9.4 CONCLUSION 99
- 1. The fiscal and equity impact of tax expenditures in the European Union 2016 Figure 12. 103
