Influence of Tax Administration on Investment Processes

Abstract

Despite the high losses of the state budget due to tax benefits, the introduced tax investment incentives did not lead to the increase in business investment. A review of the scientific literature indicates conflicting results justifying the effectiveness of tax investment incentives in different countries. Consequently, an objective assessment of the effectiveness of changes in tax legislation, analysis and generalization of the practice of tax benefits are becoming extremely relevant in this situation. The article aims at summarizing world experience and the Russian practice of tax incentives for investment activities and assessing the impact of tax administration on investment processes. Based on the comparative analysis of the tax incentives use, the authors conclude that the tax incentives are completely ineffective in attracting investments in countries with poor investment climate and low quality of public administration. In such conditions, the introduction of tax benefits seems to be of little value, since a correlation-significant relationship between tax benefits and the level of investment has not detected. Low tax rates provide powerful investment incentives only in well-governed countries. Empirical studies of tax incentives for attracting investment today go from developing bold hypotheses about the impact of taxation on investments to implementing their results in investment policy both at the national and sub-national levels around the world. Keywordsinvestments, tax investment incentives, tax administration I.