Tax incentives : a panacea or problem to enhancing economic growth in developing countries

Abstract

PURPOSE: The study sought to review literature on tax incentives in developing countries, with the objective of assessing whether tax incentives were a problem or a solution to fostering economic growth and development in developing countries. The research sought to explore the controversy surrounding the offering of incentives in developing country contexts in order to contribute to the ongoing debate on the desirability and non-desirability of tax incentives.

METHODOLOGY: This study was a critical literature review, therefore used literature review as a stand-alone methodology. Literature was collected from databases that include the Google Scholar database and. Thematic analysis was used to guide the analysis of the findings from the review. These were grouped into two major themes and these were the arguments in favour of tax incentives and those against. Several sub-themes were explored under each main theme as they emerged from the literature review.

FINDINGS: The revealed the controversy and contradiction surrounding offering incentives, their effectiveness and their influence on economic growth, spill over gains, the revenue mobilisation efforts (tax base) and future tax compliance. The review accentuated the research gaps that emanate from the lack of consensus among scholars on the effect of awarding tax incentives in developing countries.

ORIGINALITY OR VALUE: Developing countries continue to offer tax incentives yet the outcry on their relevance; contribution and effect on the tax base continue to be debatable among researchers. This study sought to contribute to this body of knowledge on the effect of tax incentives in developing countries.