The tax policy has undoubtedly an important reflection on the economic activity as taxes are regarded as one of the most important sources for obtaining the state sovereign resources leading to lowering the total deficit of the state budget and decreasing resort to monetary issuance to confront this deficit accompanied by inflationary pressures.
Taxes are important means to promote and prompt either domestic or foreign investments in order to increase production so as to face the inflationary pressures and then absorb unemployment. They play an important and effective part in the decision of investment taken by investor when choosing a country for investment. His first inquiry, in addition to others, is about the tax treatment he may be subject to either related to his profits , products or income.
Therefore, the related legislation are keen to focus on these issues to set privileges and exemptions for investors to encourage investment , in addition to facilitating extremely all procedures of collecting taxes.
For attracting investments, economic feasibility study of taxes is conducted either in relation to investor or the state. The tax report shows the economic feasibility that is the amount of economic benefit for society and its effect on attracting or dismissing investment.
When imposing a tax on investor, what should be put into consideration is how far the state benefits from the economic return on investment in respect of employment , promoting society economically and developing exports. The aim is to raise the national income , secure the appropriate economic protection for the national industries and encourage or limit some industries according to the economic development plan by using the preferential rate of tax among different activities.
The State nowadays follows a tax policy that encourages investment with taking into consideration the economic return to set up the most feasible projects for employment and create new job opportunities by raising the ratio of exemptions and also by abolishing the proportional stamp tax on capital as well as death tax.
To go ahead with increasing the tax burden is an easy way on the short run , but it’s very costly on the medium and long run leading to transferring capitals and investments outside where better economic regions and states.
The objectives of exemptions are divided into the following:
| Financial objective: |
It means providing the financial resources for the state “ proceeds availability” to meet the different liabilities and provide the public services qualitatively and quantitatively to all the society members.
| Economic objective: |
It means providing the appropriate protection to the national industries and encouraging or limiting some industries according to the economic development plan through a preferential tax rate for different activities.
| Social Objective: |
It means distributing the tax burden among all the society members based on the costing capacity of each of them such as exempting the small income holders with taking the principle of the graduation in the tax rate and the use of some tax incentives.
No doubt, the task of balance and suitability among those considerations lies on the tax policy.
It is remarkable that laws stipulating the tax exemptions grant the project a relief for some years computed from the beginning of the first fiscal year that follows the start of activity or from the start of the activity. The majority of projects either can’t make profits at the start of activity or their profits are much less than the following years as their financial status and fame in the commercial market are supported. Therefore, projects may not benefit from this exemption as desired, but this policy at the same time doesn’t waste the state resources if years of exemption extended to reach the years of success of the enterprise after being stabilized at the commercial market. In addition , it is just for the enterprise when realizing enough profits to pay the taxes of the state .
Recently, The state has been following different means to encourage investment externally or domestically within climate of safety and security.