CHAPTER ONE
INTRODUCTION
- BACKGROUND TO THE STUDY
One of the common tools for macro- economic development in developing countries is tax incentives. Government tries to attract domestic and foreign capital using tax incentives to boost her economic activities. Many countries have determined that the tax incentives covered by the tax incentive provision should be defined precisely to ensure that tax incentive is granted only for an agreed concession. These countries have concluded that general references to special incentive laws are designed to promote economic development. This is commonly done through a direct reference to domestic legislation.
Tax incentives are generally intended to encourage the start-up of new operations. It has therefore been found appropriate in some treaties to place a time limit on the availability of the tax sparing relief for each tax payer, thereby preventing tax sparing from becoming a permanent concession.
Every investor will consider the host country’s tax system in their investment decisions along with other important matters such as security of lives and properties, infrastructural facilities, political and economic policies.
Tax incentives are measures that provide for more favorable tax treatment of certain activities or sectors compare to what is generally obtainable.
Under this description, a general cut in the tax rate or generous depreciation scheme applicable to all firms would not be considered as tax incentives (Klemm 2009:3)