The ATI Regional Workshop on Tax Expenditures held in Manila, The Philippines (1-3 March, 2023) brought together nearly 60 participants from 13 countries who shared a common commitment to enhancing national frameworks in the tax expenditure field. Building on the success of the regional workshops held in Lagos and Kenya in 2022, the three-day event featured a range of sessions and panel discussions covering key topics such as governance, benchmarking, estimation as well as evaluation and reform of tax expenditures. In addition, the program discussed the implications of the GloBE Rules on the use of tax incentives for investment and, for the first time, included a sustainability dimension with a session addressing the link with tax expenditures and the Sustainable Development Goals (SDGs), and one on the use of tax expenditures supporting the production and consumption of fossil fuels.
The Workshop Report is available for download on the ATI website.
Here are some takeaways:
- A sound tax expenditure governance framework should involve both the Ministry of Finance (MoF) as well as the Parliament.
- Defining a benchmark tax system is not always straightforward and there is no general blueprint.
- Governments need to address technical and methodological challenges, but often there is also a political dimension to the question whether a specific provision should be considered a tax expenditure or part of the benchmark system.
- Almost all governments use the so-called “revenue forgone” approach to assess the fiscal cost of specific tax expenditures. Yet, due to data and modelling limitations uncertainty might be considerable.
- According to the Global Tax Expenditures Database (GTED), more and more governments have started to publish data on tax expenditures. Yet, several challenges still prevail to ensure a minimum level of transparency in the field, going from lack of human as well as technical resources (e.g. electronic tax returns) to insufficient coordination across institutions and a lack of political will.
- The use of tax incentives for investment is widespread. The impact of the recently agreed international tax deal (GloBE Rules) and, in particular, of Pillar Two, will be significant when it comes to their prevalence. There will be strong reasons for governments to review the use of tax incentives since many will be affected by the new tax rules.
- Governments worldwide still subsidize fossil fuels, the combustion of which increases GHG emissions, and tax expenditures account for one of the largest shares of these subsidies. Phasing out fossil fuel subsidies is vital to combating climate change.
- When effective, tax expenditures can contribute to the achievement of the SDGs. On the other hand, if ill-designed, they can be highly ineffective and even run against the SDG agenda.
- Ex-ante as well as ex-post evaluation frameworks are strikingly rare and, yet crucial to identify which provisions are cost-effective and which ones need to be reformed. The quantity and quality of data are key to ensure that tax expenditures are comprehensively assessed.
- Tax expenditure reforms should aim at improving the effectiveness of tax systems, ensuring that they are better aligned with governments’ policy goals. Yet, reforming tax expenditures is challenging due to, among other factors, vested interests often associated with individual preferences and institutional mechanisms.