Workshop organized by the German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE), the Council on Economic Policies (CEP) and the Addis Tax Initiative (ATI) as part of DIE’s series of “International Workshops on DRM”.
Based on actual tax information, we compute the EATR of a representative firm with and without investment incentives for 44 African countries. We then appreciate the EATR profiles as the gross profitability of firms increases and assess whether tax systems assure progressivity. Under tax incentive regimes, 20 out of the 44 countries present a regressive EATR profile, with 75% of these countries using tax exemption as incentives.
Our results provide evidence of the importance of estimating the effects of tax incentives on firms in developing countries. We assert that tax credits are a better alternative to tax exemption as they are easy to follow, and they do not induce regressivity.
