Fiscal Incentives, is it a Deciding Factor in the Investment Decision?

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The notion of whether fiscal incentives make a difference to an investor’s decision has been the subject of much academic discourse, particularly in the various organisations such as the IMF and the World Bank, which views fiscal incentives as a subsidy that Government should not grant. Their take, as I understand it, is that the Government should create the enabling environment for investment to strive, and abandon the fiscal incentives concept.

Fiscal Incentives is simply the waiver of duties and taxes on various components of items required for investment. It ranges from waiver of import duty on imports and tax holidays. Some countries require investors to apply for these incentives whilst in other countries it is granted automatically, once the decision to invest has been made.

Putting the academic reasoning aside, experience has shown that an Investor expects that in addition to the enabling environment some sort of waiver of duties is granted, part of government’s contribution towards the investment. The importance of the fiscal incentives is not to be dismissed, for the simple reason that it makes a positive difference to the cash flow position of the investor.

Now, the real question one needs to ask is would an investor invest if the government did not grant fiscal incentives. The answer is a simple No! The investor above all things looks at his profitability. He chooses to invest because he believes that the business is viable and will be profitability. Fiscal incentives or not, if these two ingredients of viability and profitability are not in the mix, the investor will not invest.

Fiscal Incentives, as it currently stands, is not a sufficient determinate to arrive at the conclusion that the investor will or will not invest. If any investor, says they are not investing because fiscal incentives are not granted then one must wonder whether this investor is really serious.

2 Responses to Fiscal Incentives, is it a Deciding Factor in the Investment Decision?
  1. Nice post, it’s a pleasure to find thoughtful well written blogs. They are few and far between. I hope you keep writing.

  2. Much interest. useful insight into the subject. very nicely written. good work done.


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