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Moderating the Effect of Taxpayer Engagement on the Relationship between Capital Gains Tax and Tax Compliance among Real Estate Businesses in Nairobi, Kenya
(Kenya School of Revenue Administration, 2023-11) Netia, Faith Opisa; Omwenga, Emma
Even though there has been a progression towards the realization of more taxes from CGT, the same is not commensurate with the size of the real estate market in Kenya. Consequently, there have been proposals to increase the CGT rate from 5% to 12.5% but the proposals have been met with resistance with some preferring stakeholders’ engagement to streamline the issues on compliance rather than increasing the rate. For this reason, the study sought to investigate the moderating effect of taxpayer engagement on the relationship between Capital Gains Tax and Tax compliance specifically among real estate property businesses in Nairobi, Kenya. The study adopted an explanatory research design with the targeted population being 467 real estate businesses from where a sample size of 216 was drawn. The specific objectives of the study were to investigate the effect of lock-in-effect on tax compliance among real estate businesses in Nairobi, the effect of capitalization effect on tax compliance among real estate businesses in Nairobi, and to determine the effect of taxpayers’ engagement as a moderating variable in the lock-in effect and capitalization effect on tax compliance among real estate businesses in Nairobi, Kenya. Data collection was done through a 5-point Likertscale questionnaire. Inferential statistics through the use of regression and correlation analysis was used to analyze variables. Regression analysis established a negative significant linear relationship between the lock-in effect and tax compliance among real estate businesses in Nairobi, Kenya with a beta coefficient of -0.119. Additionally, there was a negative significant linear relationship between the capitalization effect and tax compliance among real estate businesses in Nairobi, Kenya with a beta coefficient of -0.293 and lastly a positive but insignificant linear relationship between taxpayers’ engagement and tax compliance among real estate businesses in Nairobi, Kenya with a beta coefficient of 0.189. Also, there was a positive significant linear relationship between taxpayers’ engagement moderating on lock-in-effect and tax compliance among real estate businesses in Nairobi, Kenya with a beta coefficient of 0.521 and a negative insignificant linear relationship between taxpayers’ engagement moderating on capitalization effect and tax compliance among real estate businesses in Nairobi, Kenya with a beta coefficient of -0.258. The study concluded that the lock-in effect and capitalization effect had a negative and significant effect while tax engagement had a positive and insignificant effect on tax compliance among real estate businesses in Nairobi, Kenya. However, taxpayers’ engagement as the moderating variable was found to play a significant role in tax compliance among real estate businesses in Nairobi, Kenya. The study recommended that KRA should create more awareness among taxpayers on the impact of lock-in effects and capitalization effects on the economy and why it is a vital aspect for consideration.
Impact of Indirect Tax Policy Reforms on Revenue Performance in Kenya
(Kenya School of Revenue Administration, 2023-11) Kiara, Faith Gatwiri; Nekesa, Marion
The largest source of government revenue in Kenya is taxation. Domestic revenue mobilization is a key priority for providing governments with funds to deliver public services, for sustainable development agendas and investing in development. Tax and non-tax revenue are critical components of domestic resource mobilization. Over the years, there have been major changes in the tax systems of various countries including Kenya. The motivation for these reforms has varied from country to country. For many developing countries, the impending fiscal crisis has provided the need for immediate tax reforms to enhance revenues. Kenya has undertaken massive tax reforms since the late 1980s under the Tax Modernization Programme. The significance of Indirect taxes over direct taxes as a means of raising government revenue has gained momentum and is viewed as more favorable for investment and growth. Little is known about the performance of the reforms in terms of revenue-raising capacity for each tax category. This study aims to examine the impact of tax reforms with respect to pre-and post-reform periods and the factors underlying the observed trends of indirect taxes as one of the revenue sources that is not fully utilized. The objectives of the study were to establish the effects of the introduction of Withholding VAT the introduction of EGMS and switching the tax system from hybrid to a uniform specific or ad valorem Excise tax regime on revenue collection in Kenya. Annual secondary data spanning the period 2010-2019 was used in the analysis. The source of the data was mainly the Kenya Revenue Authority and the Kenya National Bureau of Statistics. Impact evaluation techniques (regression discontinuity and difference-in-difference) also known as quasi-panel analysis techniques were used in the analysis. Stata software was employed in the analysis. From the difference-in-difference model, the analysis reveals that the introduction of EGMS led to an increase in excise revenue by 81.2%. This was significant at a 1% level of significance. VAT increased by 13.4 percent following the introduction of VAT withholding agents. This was equally significant at a 5a % level of significance. These findings are expected to shape policy direction that is aimed at enhancing domestic revenue mobilization. Based on the findings, the study recommends that the Commissioner of Domestic Taxes should map all Medium Taxpayers (MTO) based on risk assessment and enroll additional taxpayers who can serve as potential VAT withholding agents. Further, the study recommends the broadening of the scope of goods covered under the EGMS system, and amendment of the Excise Duty Act to revert to the hybrid system (Higher specific or ad valorem rates).
Effect of Tax Incentives on Financial Performance among Manufacturing Firms in Kenya (A Case of Industrial Area, Nairobi)
(Kenya School of Revenue Administration, 2023-11-20) Kimeu Faith Mumbua; Nekesa, Marion
Tax incentive is a strategy employed by governments world over to attract investments in varied sectors of their economies. The main objective of this study was to examine the effect of tax incentives on financial performance of manufacturing firms in Kenya, taking manufacturing firms in Nairobi industrial area as a case study for 10 years. The study was guided by the following specific objectives: to find out how capital allowance affect financial performance of manufacturing companies in Kenya, to establish the effect of allowable deductions on financial performance of manufacturing companies in Kenya and to investigate effects of investment deductions on financial performance of manufacturing companies in Kenya. The study adopted deterrent theory, ability to pay theory, and agency theory. The study employed a descriptive research design, using stratified sampling methods. The study’s target population was manufacturing companies in Kenya specifically in the Nairobi Industrial Area across all the categories as listed by the Kenya Association of Manufacturers directory as at 2022. The study collected secondary quantitative data which was analysed using descriptive statistics (means and standard deviations) and inferential statistics (correlation analysis) to determine the relationships between the independent variables and the dependent variable. Tables and figures were used to present the analysis output. The findings indicated that tax incentives had a significant positive effect on financial performance, as they reduced the cost of capital for manufacturing firms, promoted innovation and competition, and led to increased productivity and efficiency. Based on these findings, the study recommended that the Kenyan government should continue to provide tax incentives to manufacturing firms and tailor them to the specific needs of each firm, while also encouraging innovation and competition in the sector through support for research and development, technology transfer, and training programs. Manufacturing firms are also encouraged to take advantage of the tax incentives to invest in capital-intensive projects and acquire capital assets. However, there is a need to review the current tax laws to make the tax incentives more flexible and attractive to potential investors, and to consider increasing the amount of tax incentives to further reduce the cost of capital for manufacturing companies.
Do regional economic disparities promote regional value chains? A case study of East Africa Community member states
(Kenya School of Revenue Administration, 2024-11) Kainga, Erastus Chokera; Muthoga, Samuel Dr.
Regional economic disparities in developing countries impact growth of regional value chains to compete in the global markets. Regional economic disparities are the difference in economic capabilities between states in a region. The objective of this paper is to explore the impact of regional economic disparities (RED) on growth of food and beverage regional value chains (RVCs) in the East Africa Community (EAC) manufacturing sector. The paper employs the New Economic Geography (NEG) model in investigating the dynamics of promotion of regional value chains in EAC’s manufacturing sector. By making use of secondary data from five member states, the author surveys labour in the manufacturing sector, total income of labourers and executives, taxes, intra-regional and extra-regional trade in foods and beverages, and gross value added as the regional value chain determinant. To answer the research questions, regression analysis was used to shed light on (i) the effect of regional economic disparities on promotion of regional value chains in EAC and (ii) the effect of prices on regional value chains. The findings show disparities having a positive and significant effect on promotion of RVCs; price, intra and extra-regional trade, and executive salaries while labourers’ salaries and taxation have a negative and significant effect on the promotion of RVCs. Whenever EAC states imported from one another, it was noted that the GVA changed positively, similarly when trading with nations outside EAC. When employees in executive positions were well appreciated there was a positive effect on the GVA and a negative effect was observed whenever casual employees were paid more than average in their states as well as when taxes were increased. Future research work may look into Climate Changes, Export Controls and Politics as promoters of regional value chains as well as infrastructure, and technology. The results show need for labourers to acquire more skills necessary to remain relevant in the transforming manufacturing sector. Further, that technology absorption is crucial among producers and regional tax agreements are necessary in industry location decisions. Finally, wages were noted to determine production as the nations paying their workers more seemed to trade regionally more. The author therefore concludes that EAC member states need to increase intra-regional trade, apply some protectionist policies as well encourage increased budgets for education and building of institutions while also attracting foreign direct investments with tax reliefs.
Determinants of Gender Wage Gap : A Case of Bungoma County, Kenya
(Kenya School of Revenue Administration, 2024-11) Machogu, Ronald Ondigi; Omolo, Jacob
Differences in wages based on gender remain a topical policy area in many countries. Since attaining political independence in 1963, Kenya has taken legislative, administrative, programmatic and policy measures to promote gender equality. Among the major efforts are enactment of the Employment Act 2007, which provide for equal pay for work of equal value performed by men and women, and non-discrimination on account of gender in all aspects of remuneration and employment. The Constitution of Kenya (2010) also guarantees equality of opportunity and elimination of discrimination such as gender-based bias in employment and remuneration. In an effort to advance gender equality, the government also formulated the National Policy on Gender and Development in 2000, and a revised National Gender and Development Policy in 2019 to provide policy and institutional framework for promoting gender equality in the country. Despite the policy, legal, regulatory and institutional interventions, gender-based bias in employment and remuneration persist. Kenya’s gender wage gap was 68 percent in 2020, implying that women earned KSh. 68 for every KSh. 100 earned by men for doing similar work. In 2014, women earned 64.7 per cent of men’s earnings, on average. This study sought to establish the determinants of gender wage gap in Kenya with a focus on Bungoma County. A cross-sectional research design was used, and data collected from 410 employees sampled from Bungoma County. The research employed multiple regression method in data analysis. The results reveal that, holding other variables constant, a male worker in Bungoma County earned KSh. 8,231.65 more than a female worker. The study also established that gender, education, age, marital status, work experience, religion and employer are important determinants of gender wage gap in Bungoma County. Given that the existing policy framework at national and county levels covers gender-based discrimination, increasing compliance with the policies would be necessary to bridge the wage gap. Additionally, short-term measures such as investing and promoting female education would contribute to reducing the wage gap.
Recurrent Government Expenditure and its effect on Public investment in Kenya
(Kenya School of Revenue Administration, 2024-11) Nzuma, Jane Mutheu; Espiritu, Angelica Njuguna
This study analyzed how various components of recurrent public spending influence public investment in Kenya. Specifically, it measured the effects on public investment. Despite significant efforts to reduce recurrent expenditure, Kenya's public spending remains heavily dominated by operational costs, hindering its ability to achieve targeted investment levels. In the 2020/21 fiscal year, recurrent expenditure accounted for 81% of the total budget, while debt servicing and compensation of employees took up 14% and 18% respectively. This allocation of resources has limited the government's capacity to invest in critical areas for economic growth, as evidenced by the shortfall in investment compared to the Vision 2030 goals. The study relied on time series data extracted from the Economic Surveys, Kenya National Bureau of Statistics' various Statistical Abstracts, and the World Bank database covering the period from 1970 to 2022. Subsequently, a Bound test identified a long-run equilibrium relationships among the variables. Finally, an autoregressive-distributed lag (ARDL) model was utilized to analyze the causal relationships between recurrent public spending components and public investments. The results showed that the recurrent expenditure component on general public administration had significant negative effect on public investment in the short run but its first lag crowds in public investment in the long run. Recurrent expenditure on operation and maintenance costs was found to have positive effect on public investment both in short run and in long run. Lastly, the recurrent expenditure component on debt Servicing Charges was found to crowd in public investment.
The Effect of Service Quality on the adoption of KRA TIMS/eTIMS among Medium-Sized Enterprises Within Nairobi County
(ATCR Publishing, 2024-11) Irungu, Irene; Nekesa, Marion
The Kenyan government, through the Kenya Revenue Authority (KRA), has introduced the Tax Invoice Management System (TIMS) and its electronic counterpart (eTIMS) as part of its strategy to modernize tax collection and reduce instances of tax evasion. While the systems have been hailed as essential for enhancing tax compliance, the rate of adoption among medium-sized enterprises (SMEs) within Nairobi County remains inconsistent. The purpose of the study was to determine the effect of Service Quality on the Adoption of KRA TIMS/eTIMS Among Medium-Sized Enterprises within Nairobi County. This study employed a descriptive survey research design to gather quantitative data, ensuring a comprehensive understanding of the research problem. The target population consisted of 468 VAT-registered, medium-sized enterprises in Nairobi’s wholesale and retail sector, selected for their significant compliance gaps in VAT reporting. From this population, a sample size of 150 enterprises was determined using Yamane’s formula and adjusted for time and cost constraints. Purposive sampling method was used to select participants, ensuring representative and reliable data. Data collection utilized questionnaires. For data analysis, descriptive statistics (mean and standard deviation) and inferential statistics were employed. A multiple regression model was used to explore the relationship between variables. Results were presented through tables highlight key findings and trends. The study found a significant effect of service quality on KRA TIMS/eTIMS adoption, with an R-value of 0.848 and R² of 0.719. The regression coefficient was 0.551, with a t-value of 1.898 and p-value of 0.000, confirming statistical significance. The study concluded that factors such as the helpfulness and knowledge of KRA employees, along with the convenience of KRA's operating hours, significantly influence businesses’ decisions to embrace the system. The study recommended that KRA should continue improving its service quality to enhance the adoption of the TIMS/eTIMS system among medium-sized businesses. Furthermore, the study suggested that KRA should enhance the visual appeal of its offices and ensure it delivers on promises, as these factors contribute to a positive service experience.
Effect of Digitalization Effectiveness on Turnover Tax Compliance among Textile Small and Medium Size Enterprises in Eastleigh, Nairobi County
(ATCR Publishing, 2024-11-29) Abdi, Ahmed Mohamed; Nekesa, Marion; Kirui, Daniel K.
Tax is an important stream of revenue for any government’s development projects in both developed and developing economies. The main purpose of this study was to determine the effect of digitalization effectiveness on turnover tax compliance among small and medium size enterprises in Eastleigh, Nairobi County. The specific objectives that guided the research were: to study the relationship between technological ease of use and turnover tax compliance; to establish the relationship between technology usefulness and turnover tax compliance and to examine the relationship between system security mechanism and turnover tax compliance among small and medium size textile enterprises. This study was grounded on Technology Acceptance Model and Unified theory of Acceptance and use of Technology. Descriptive research design was applied in this study. The target population was textile enterprises operating in Eastleigh Avenue. Stratified sampling technique was utilized since the population itself was stratified in nature. Yamane's formula was used to determine the sample size of 243 textile SMEs. Data was collected using questionnaires and analyzed descriptively. To establish the relationship between study variables correlations and regression analyses were carried out. The study findings revealed that regression coefficient for technological ease of use, technology usefulness and system security mechanisms had (β = .098,.311 and .129) had positive and significant relationship with turnover tax compliance. The study concludes that technology facilitates compliance by reducing user effort and increasing openness to new technologies. It recommends that the Kenya Revenue Authority (KRA) ensure their digital systems are user-friendly, reliable, and effective. Enhancing the online system's ease of use, reliability, and functionality could improve the efficiency and convenience of tax filing, fostering a positive user experience and greater compliance.
Accessibility of Credit and Performance of Micro, Small and Medium Enterprises in Nandi County, Kenya
(Kenya School of Revenue Administration, 2024-12-13) Lagat, Delphine Jemutai; Njaramba, Jennifer
Micro, Small, and Medium Enterprises (MSMEs) are pivotal drivers of Kenya's macroeconomic objectives, playing a critical role in accelerating economic growth, generating substantial employment opportunities, and sustaining livelihoods across the nation. In response, the government has continually implemented robust policy interventions designed to create an enabling environment where MSMEs can thrive and contribute even more effectively to Kenya’s socio-economic development. Despite the numerous intervention initiatives, the performance of the MSME sector has been steadily declining. The persistent lack of operating funds remains a major obstacle, stifling business growth, innovation, and long-term sustainability. This study’s objective is to find out the determinants of accessing credit and its effects on the performance of MSMEs in Nandi County. The study uses primary data collected by interviewing 370 individuals who own MSMEs. The MSME owners were selected through a stratified sampling technique according to their type and a structured questionnaire administered. Descriptive statistics and probit regression model were used to investigate various determinants of accessing credit and to investigate the effects of credit accessibility on performance of MSMEs.The study found that gender, tertiary education, perception to credit and registration of business are significant determinants of credit access among MSMEs. Further findings indicate that gender, tertiary education, perception to credit, transport cost, size of the business and distance from the business premise significantly affects the performance of MSMEs.The study concludes that strengthening education and promoting gender equity are crucial to improving credit access for MSMEs, which in turn will significantly boost their performance and long-term success.
Revenue Administration Handbook
(International Bank for Reconstruction and Development / The World Bank, 2024) WorldBank
Revenue Administration Handbook aims to provide a comprehensive view of all aspects involving tax and customs administrations, starting from tax policy considerations that affect administrative functions (chapter 1). There is a broad consensus on the existence of strong linkages between tax policy and tax administration. The best tax design needs to be implemented to achieve a fair and consistent application of tax laws. Conversely, a modern and effective tax administration needs a coherent and consistent set of laws to achieve its goals. Among the topics covered in the first chapter and its appendixes, taxpayer segmentation is vital to allocate the scarce resources of revenue bodies more efficiently and to effectively control compliance. Similarly, presumptive taxation may prove useful when the treatment and analysis of the real tax base entail a high degree of complexity. This involves an interesting question that consists of establishing the extent to which presumptions can contribute to the simplification of tax administration without fundamentally altering or substituting the essence of their respective tax bases and the original nature of the tax itself. This chapter concludes with a discussion of nontechnical drivers, reflecting the fact that before designing tax reform and a tax project to support the reform, it is important to understand the political economy context, the institutional environment, and taxpayer morale.
Designing a Presumptive Income Tax Based on Turnover in Countries with Large Informal Sectors
(International Monetary Fund, 2023-12-22) Feng Wei; Jean-François Wen
Turnover (sales) is frequently used in developing countries as a presumptive income tax base, to economize on the costs of tax administration and taxpayer compliance. We construct a simple model where a size threshold separates firms paying turnover tax from those paying profit tax (regular income tax), and where firms have the option of producing in the untaxed, informal sector. The optimal turnover tax rate trades off two policy concerns: reducing informality and avoiding strategic reductions in sales by firms seeking to remain below the threshold for the profit tax. We provide analytical results and calibrate the model to compute the optimal policy using realistic parameter values. The optimal turnover tax rate for countries with large informal sectors is found to be around 2.5% across most scenarios, while the threshold separating the turnover tax regime from profit tax lies for the most part between $65,000 and $95,000. Introducing an optimally designed turnover tax reduces the rate of informality of businesses by about 12 percentage points in the calibrated model.
Kenya
(International Monetary Fund, 2024-01-17)
Tax Evasion from Cross-Border Fraud
(IMF, 2020-11-13) Emmanouil Kitsios; João Tovar Jalles; Genevieve Verdier
How can governments reduce the prevalence of cross-border tax fraud? This paper argues that the use of digital technologies offers an opportunity to reduce fraud and increase government revenue. Using data on intra-EU and world trade transactions, we present evidence that (i) cross-border trade tax fraud is non-trivial and prevalent in many countries; (ii) such fraud can be alleviated by the use of digital technologies at the border; and (iii) potential revenue gains of digitalization from reducing trade fraud could be substantial. Halving the distance to the digitalization frontier could raise revenues by over 1.5 percent of GDP in low-income developing countries.
Gender and Economic Growth in Uganda
(World Bank, Washington, DC, 2005) Ellis, Amanda; Manuel, Claire; Blackden, C. Mark
Uganda is a leader in Sub-Saharan Africa, in recognizing linkages between economic growth and gender issues. These linkages are critical for achieving the Millennium Development Goals. The study assesses the legal and administrative barriers faced by women, as identified by the Bank's Foreign Investment Advisory Service (FIAS) and the International Finance Corporation's (IFC) Gender-Entrepreneurship-Markets Unit. The structure of the report mirrors that of the FIAS 2003 Administrative Barriers to Investment Report, and is designed to highlight the gender dimensions of that research to encourage further replication. The findings of this report indicate the considerable potential for economic growth that exists, if Uganda is to unleash the power of women, and support their full economic participation in the private sector. This assessment considers the relationship between gender and economic growth in Uganda in the context of promoting women's participation in business and entrepreneurship. Men and women both play substantial, albeit different, economic roles in the Ugandan economy. Each contributes about 50 percent of GDP, and women represent 39 percent of businesses with registered premises.
Uganda's Recovery
(World Bank, Washington, DC, 2001-03) Reinikka, Ritva; Collier, Paul
This book consists of series of studies written by a range of specialists who analyze the responses of private sector agents--households, farms, and firms--and of the government of Uganda itself, to the macroeconomic and structural reforms implemented since the late 1980s in a society recovering from a traumatic civil conflict. The importance of this line of inquiry cannot be underestimated because the success or failure of market-oriented reforms depends crucially on just how private sector agents are able to respond to incentives and opportunities created by the reforms. The analysis in this book draws on quantitative data derived from a series of household surveys and from surveys of firms conducted in the 1990s and more recently in 1999/2000. The household surveys permit analysis of the evolution of income, expenditures, and poverty during this period. The impact of reforms on rural factor markets, on crop and livestock production decisions, and on firms' investment decisions are also among the issues researched in this report. While this report praises Uganda's achievements where warranted, it provides an objective assessment of the reforms and does not shy away from identifying areas where policy mistakes were made. It points out where major weaknesses still exist, notably, public sector corruption, the still poor enforcement of contracts, and the deficiencies in the physical infrastructure.
Customs Modernization Initiatives
(World Bank, Washington, DC, 2004) De Wulf, Luc; Sokol, José B.
This volume presents case studies of customs modernization initiatives in eight developing countries: Bolivia, Ghana, Morocco, Mozambique, Peru, the Philippines, Turkey, and Uganda. The purpose of these case studies was to obtain a firsthand view of how these countries undertook customs reforms and to assess their success. The overall lessons learned from these studies are presented in chapter 2 of the Customs Modernization Handbook (World Bank forthcoming), a companion volume that provides policymakers, practitioners, and project managers from development agencies with an overview of the key issues they need to address in preparing and implementing customs modernization initiatives. The audience for the Customs Modernization Handbook is customs officials who are called on to design and implement customs reform and modernization strategies, as well as staff members of the World Bank and of other multilateral and bilateral development agencies who support developing countries in implementing such strategies. All the case studies except for the one on Ghana were prepared using basically the same methodology, which aimed at identifying the origins of the reforms, the main drivers, and the outcomes. The Ghana case study is somewhat different, because it focuses on how the automation of trade and customs processes took the lead in the trade facilitation and customs reform.
Private Solutions for Infrastructure in Rwanda
(World Bank, Washington, DC, 2005) Private-Public Infrastructure Advisory Facility
This report aims to provide an objective assessment of the condition of Rwanda's infrastructure sectors and of the institutional and policy frameworks that are associated with them. It also provides a clear route map for infrastructure sector reform, as well as highlighting both the opportunities that exist for the private sector and the role that the donor community can play in assisting the Government with establishing priorities in infrastructure.
Budgeting for Effectiveness in Rwanda
(World Bank, Washington, DC, 2010-10-01) World Bank
The overall objective of this comprehensive report is to consider Rwanda's budget support in the context of its overall public expenditure and resources to: (a) provide an overview of Rwanda's experience with budget support, reform measures, and its progress of budget harmonization, (b) provide the first comprehensive assessment of all of Rwanda's overall public expenditures and resources between 2004 and 2007, and (c) provide the first summary of public expenditure reviews and related analytical work undertaken in priority sectors, covering varying periods between 2000 and 2007. Following this introductory chapter, chapter two reviews: (a) general budget support relevance, rationale, and outstanding challenges in the context of Rwanda by providing a historical background of budget support; (b) Rwanda's progress in budget support- related processes and practices; (c) economic and structural reforms to date; and (d) budget support predictability trends. Chapter three then assesses the net resources available to the government of Rwanda and how these resources were spent. In this chapter, resources are broken down by domestic revenue (tax revenue, nontax revenue, and other sources), external funding (grants and loans), and other financial resources; expenses are broken down by recurrent expenditures (operational expenditures, interest and commission, reimbursement of public debt, and subsidies and recurrent transfers), capital expenditures and net lending, and arrears. Chapter four follows with a detailed review of resource allocations and spending among the government's ministries, including its transfers to districts. Public expenditures are broken down according to the structure of the Organic Budget Law, considering recurrent and development spending by ministry and economic classifications. Chapter five reviews all sectors-not only ministerial expenditures, but also other sector?related spending across ministries and other expenditures that contribute to a sector but are not part of central?government spending. Chapter six summarizes the report, addresses outstanding challenges, and offers concluding remarks.
Using Tax Incentives to Compete for Foreign Investment
(World Bank, Washington, DC, 2001) Wells, Louis T., Jr.; Allen, Nancy J.; Morisset, Jacques; Pirnia, Neda
The book contains complementary essays on the use of tax incentives, to attract foreign direct investment (FDI). The first essay presents results of the authors' original research, and explores FDI, and issues of tax incentives, in the context of Indonesia. Their results mostly support the arguments made against incentives, particularly they find little evidence that when Indonesia eliminated tax incentives, there was any decline in the rate of FDI into the country. Similarly, the second essay surveys the research of others on the same topic, and pertaining to the same issues discussed in the first essay. They show that results of other researchers, are generally consistent with the findings of the research in Indonesia, notably that tax incentives, neither affect significantly the amount of direct investment that takes place, nor usually determine the location to which investment is drawn. Nevertheless, recent evidence has shown that when factors such as political, and economic stability, infrastructure, and transport costs are more, or less equal between potential locations, taxes may exert a significant impact. This is evidenced by the growing tax competition in regional groupings (i.e., the European Union) or, at the sub-regional level within one country (i.e., the United States). Both essays provide a basis for much more sophisticated analysis by policymakers than previously, and, both are important because they question governments' institutional arrangements that create agency problems with respect to tax incentive policies.
Transfer Pricing and Developing Economies
(World Bank, Washington, DC, 2016) Cooper, Joel; Fox, Randall; Loeprick, Jan; Mohindra, Komal
Recent years have seen unprecedented public scrutiny over the tax practices of Multinational Enterprise (MNE) groups. Tax policy and administration concerning international transactions, aggressive tax planning, and tax avoidance have become an issue of extensive national and international debate in developed and developing countries alike. Within this context, transfer pricing, historically a subject of limited specialist interest, has attained name recognition amongst a broader global audience that is concerned with equitable fiscal policy and sustainable development. Abusive transfer pricing practices are considered to pose major risk to the direct tax base of many countries and developing countries are particularly vulnerable because corporate tax tends to account for a larger share of their revenue. This handbook is part of the wider WBG engagement in supporting countries with Domestic Resource Mobilization (DRM) by protecting their tax base and aims to cover all relevant aspects that have to be considered when introducing or strengthening transfer pricing regimes. The handbook provides guidance on analytical steps that can be taken to understand a country’s potential exposure to inappropriate transfer pricing (transfer mispricing) and outlines the main areas that require attention in the design and implementation of transfer pricing regimes. A discussion of relevant aspects of the legislative process, including the formulation of a transfer pricing policy, and the role and content of administrative guidance, is combined with the presentation of country examples on the practical application and implementation of the arm’s length principle and on running an effective transfer pricing audit program. Recognizing the importance of transfer pricing regulation and administration for the business environment and investor confidence, this handbook aims to balance the general objective of protecting a country’s tax base and raising additional revenue with investment climate considerations wherever appropriate.

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