TAX INCENTIVES FOR ATTRACTING FOREIGN DIRECT INVESTMENT IN SUB-SAHARAN AFRICA: A COMPARATIVE STUDY OF GHANA AND KENYA

Abstract

Developing countries have increasingly resorted to the use of tax incentives to attract FDI, despite existing evidence of the shortcomings of tax incentives. In sub-Saharan Africa, tax incentives are a prominent feature of many investment codes. Sub-Saharan African countries find tax incentives as a means of attracting FDI because there are no viable alternatives per se, and they believe that tax incentives can be structured to ensure that FDI advances socio-economic and technological development. But the reliance on tax incentives at the expense of maximizing domestic tax revenue poses a challenge to sustainable development. This study examines Ghana and Kenya to see which of them will better achieve this balance, and makes recommendations on how this balance can be enhanced. The study finds that tax incentives are not well designed and administered. The recommendations suggest that legislative and administrative reforms be undertaken to make tax incentives more effective.