Download Taxation, Trade and investment - Jane Nalunga

Taxation , Trade and investment
linkages
•My presentation will be prefaced by 3 points:
•Understanding and appreciating the linkages
between trade, investment and finance will yield
important insights that can generate synergies.
Global development debate on “coherence” among
financial, trading and monetary policies.
(
Monterrey Consensus)
It is very difficult to ensure that trade becomes an
engine of development without the aiding support
of policies in the investment and fiscal area.
Cont.
• Fiscal policy has tended to be seen as a
mechanism to generate revenue Fiscal policy
as a tool to leverage better outcomes from
investment and trade reforms/policies
• Contextualise the linkages within the overall
development agenda, national / regional
policy goals based on national/ regional
priorities. Taxation, trade and investment
become tools to achieve these goals.
Taxation & Trade
• The broad objectives (especially in developing
countries) of trade policy are mainly two:
• To nurture and protect the economy by
reducing pre-mature exposure of the economy
in general or particular sector from external
competitive pressures and shocks.
• To enhance response capabilities of the
economy and the population to domestic and
external opportunities.
Cont.
• Both objectives are aimed at fostering
sustainable development in the long run and
reducing poverty levels in the short term.
• Taxation can be used as a strategic tool to
achieve these trade policy objectives.
Taxation tools
• Should be aware of the wide range of
tax tools, how to use them;
advocate & protect them especially
in the ongoing trade related
negotiation, loan /debt discourses
• Choice depend on policy goals to be
achieved
Import Tariffs
• import tariffs are customs duties imposed on a product
at the time of import.
• Imported products less competitive compared to the
similar domestic product since the cost of duty charged
usually get passed on to the consumer as increase in
prices.
• Protect the domestic economy or sector.
• Many countries, especially the developed countries,
have kept their tariffs on agricultural products very
high.
• used other related policy tools like tariff escalation and
tariff peaks to further protect their agricultural sector
Cont.
• tariff escalation a higher tariff is imposed on higher
processed product compared to the lower processed
ones. For example low duties are imposed on fresh
tomatoes, but higher duties on canned tomatoes and
even higher duties on tomato ketchup.
• In Africa, have very low tariffs ; unilaterally reduced
their tariffs under the IMF/WB Structural Adjustment
Programmes (SAPs). WTO, Bilateral trade agreements
( EPAs);
• EU –EAC EPAs liberalisation 82% of trade between
them
• Lower import taxes , flooding of cheap and
competitively produced goods into Africa – high
Subsidies in Europe.
Export taxes
• Restrict exports in order to achieve a number
of policy objectives:
– To promote value addition of that particular
product.
– To guarantee an adequate supply of a particular
commodity at affordable prices at the domestic
market, in order to maintain economic and
political stability
– To reduce commodity price fluctuation.
– To help increase fiscal revenue
Criticism Vs Export Taxes
• They are a non tariff barrier and that they distort
trade ; create an unfair advantage to domestic
industries involved in international trade because it
restricts the availability of raw materials for
processing.
• hurts the exporters as it makes the exports
expensive in the markets where they are exported.
• Under attack in many regional and bilateral trade
agreements including the EPAs, though they are
allowable in the WTO.
Cont.
• Using export taxes is a right and legitimate tool;
and many countries are imposing export taxes to
achieve one or more of the above objectives.
• Elimination of export taxes , extensive reduction
of import tariffs –negative impact on revenue –
fiscal constraints – limited provision of social
services & no capital for reinvestment in the
economy - FDI , Loans ( conditionalities)
Cont.
• How EU has used ban on export taxes in the
EPAs : Raw Materials Initiative: ‘Access to primary
and secondary raw materials should become a
priority in EU trade and regulatory policy. The EU
should promote new rules and agreements on
sustainable access to raw materials where
necessary, and ensure compliance with
international commitments at multilateral and at
bilateral level, including WTO accession
negotiations, Free Trade Agreements, regulatory
dialogue and non-preferential agreements’
Taxation & investment
• Objective of taxation tools would be to ensure
that the investment effectively delivers on its
promises i.e. transfers technology,
employment creation, industrialisation &
fostering backward and forward linkages,
capital accumulation.......
Tax Incentives
• For influencing the structure and nature of
investment that generates positive spill over –rather
than attract it.
• Malaysia- certain foreign companies could claim
income tax deductions on expenditure incurred for
the training of employees, product development
• In Korea, a program made expenditures on human
resource development in SMEs eligible for a tax
credit of up to 10 per cent. Such incentives have
been implemented also in Singapore, Thailand and
Hungary.
Obstacles to using tax tools
• Trade , finance and investment liberalisation (EPAs,
GATs, BITs)
• – restrictions on tax policy space ;
transfers/reinvestments, joint ventures, capital account
liberalisation, floating foreign exchange rates...
• Negotiating capacity of host governments ; race to the
bottom
• Tax /trade/investment & Development : A tale of 2
contradictory paradigms – Delink between where we
want to go/to achieve – the policies to take us there
Conclusion