Mr. Lent, Chief of the Tax Policy Division, formerly served as assistant director of the tax analysis staff, U.S. Treasury Department; consultant, Organization of American States; and research associate, National Bureau of Economic Research, New York. He was on the faculty of the University of North Carolina and Dartmouth College.
United Nations, Economic and Social Council, “Measures for the Promotion of Foreign Private Investment,” Ch. VII in “The Promotion of the International Flow of Private Capital: Fourth Report of the Secretary General,” Official Records of the Economic and Social Council, Annexes (37th Sess., Geneva, 1964), Agenda Item 10 (Financing of Economic Development), Document E/3905 and Add. 1, pars. 289-333 (pp. 56-71).
Agency for International Development, Foreign Aid Through Private Initiative (Washington, 1965), p. 11.
Pedro Mendive, “Tax Incentives in Latin America,” Economic Bulletin for Latin America, United Nations, Vol. IX (1964), p. 104.
For a summary of this thesis and a critical review, see G.L. Hyde, “A Critique of the Prebisch Thesis,” Economia Internazionale (Genoa), Vol. XVI (1963) pp. 463-87. See also Bela Balassa, El Desarrollo Económico y la Integratión [Economic Development and Integration], Centro de Estudios Monetarios Latinoamericanos (Mexico City, 1965), pp. 61-81.
Although Latin American countries continue to emphasize the promotion of manufacturing industries, it is increasingly recognized that this process may have reached its economic limits in some countries. This view is expressed in United Nations, Towards a New Trade Policy for Development, Report by the Secretary-General of the Conference on Trade and Development, E/CONF.46/3, UN Publication Sales No.: 64. II. B. 4 (New York, 1964), hereinafter cited as Towards a New Trade Policy for Development, p. 21: “The simple and relatively easy phase of import substitution has reached, or is reaching, its limit in the countries where industrialization has made most progress. As this happens, the need arises for technically complex and difficult substitution activities, which usually require great capital intensity and very large markets if a reasonable degree of economic viability is to be attained. Thus there are limits to import substitution in the developing countries which cannot be exceeded without a frequent and considerable waste of capital.”
Costa Rica, Ecuador, India, Israel, Ivory Coast, Jamaica, Mexico, Morocco, Nigeria, Pakistan, Panama, Philippines, and Trinidad and Tobago.
United Nations, Economic and Social Council, “The Promotion of the International Flow of Private Capital …” (cited in fn. 1), par. 304, p. 58.
J. Loyrette, “Les Codes d’Investissement,” Penant (Paris), Year 73, April-May 1963, p. 153.
For example, the enterprise agreement between Societe Africain des Cacaos and the Government of Ivory Coast.
Israel Economic Forum, Ministry of Commerce and Industry, Vol. XII, August 1963, p. 68.
Act Authorizing the Exemption of Basic Industries from the Payment of Certain Taxes, Republic Act No. 3127, 1961.
Sanford G. Ross and John B. Christensen, Tax Incentives for Industry in Mexico, International Program in Taxation, Harvard Law School (Cambridge, Massachusetts, 1959), p. 12.
Z. Dinstein, “Development and Investments,” Israel Economic Forum, Vol. XII, August 1963, p. 59.
Pakistan, Central Board of Revenue, Brochure on Taxation of Income and Concessions to Industries in Pakistan (Karachi, 1960), p. 99.
Law of 1946, Article 2, II, published in the Official Gazette, February 9, 1946.
Law of 1955, Article 1, published in the Official Gazette, January 4, 1955.
See K.E. Lachmann, Industrial Promotion Laws in Central America, prepared for the Committee on Economic Co-operation of the Central-American Isthmus, 1960 (mimeographed), pp. 36-41.
Costa Rica’s Industrial Protection and Development Law (No. 2426, 1959) provides: “The benefits granted to one or more industrial plants for initiating or increasing a specified industrial line shall be granted under equal conditions to all those who are dedicated or who may dedicate themselves to producing like or similar merchandise, provided it is demonstrated that the size of the market permits the economic functioning of several plants and provided the new applicants assume obligations equal to those of the established plants” (Article 33).
Ross and Christensen, op. cit., p. 64.
Provision could be made, as in Costa Rica, Haiti, and Jamaica, for compensating excise taxes on the domestically produced product that would offset the loss of import duties.
For text, see United Nations, Economic Commission for Latin America, Report of the Eighth Session of Central American Economic Co-operation Committee, December 1960-January 1963, E/CN.12/672, E/CN.12/CCE/303/Rev. 1, UN Publication Sales No.: 63. II.G. 12 (New York, 1964), pp. 56-62.
Johannes R. Kahabka, Tax Incentives for Private Industrial Investment in Less Developed Countries, International Bank for Reconstruction and Development, Report No. EC-102 (Washington, 1962), pp. 3-6.
See also discussion below (p. 280).
Investment credits such as the United States provides fall in the same category but no such technique appears to be employed by developing countries.
First Secretary of State and Secretary of State for Foreign Affairs, Chancellor of the Exchequer, and President of the Board of Trade, Investment Incentives, Cmnd. 2874 (London, 1966).
Several of the more developed countries follow a similar policy for the encouragement of new industries in certain depressed areas. Canada has granted 3-year tax exemptions (since June 1965, outright grants) to industries locating in designated areas; the United Kingdom has extended greater investment allowances (now grants) to businesses locating in developing areas. Since 1947, Italy has offered special tax concessions and other benefits to promote the locating of new industries in the south (Gardner Ackley and Lamberto Dini, “Agevolazioni fiscali e creditizie per lo sviluppo industriale dell’Italia meridionale,” Moneta e Credito (Rome), Banca Nazionale del Lavoro, Vol. XIII, March 1960, pp. 25-52).
For an excellent systematic treatment, see Jack Heller and Kenneth M. Kauff-man, Tax Incentives for Industry in Less Developed Countries, Harvard Law School, International Program in Taxation (Cambridge, Massachusetts, 1963), pp. 86-195. See also Richard Goode, “Accelerated Depreciation Allowances as a Stimulus to Investment,” Quarterly Journal of Economics, Vol. LXIX (1955), pp. 191-220.
The Republic of China, for example, grants 5-year tax exemption to income attributable to a plant expansion that increases productive capacity by 30 per cent (Article 5).
A.R. Prest, A Fiscal Survey of the British Caribbean, Colonial Office, Colonial Research Studies No. 23 (London, 1957), pp. 28 and 102; J.E. Meade, “Mauritius: A Case Study in Malthusian Economics,” The Economic Journal (London), Vol. LXXI (1961), pp. 521-34.
Many countries allow expensing (current deduction) of costs of opening up new land and of planting new trees. For example, effective with 1965/66, Ceylon permits a current deduction for capital expenditures incurred in clearing; draining; terracing; and constructing roads, wells, and irrigation channels—as well as the cost of young trees, poultry, and livestock. Expenditures incurred in erecting buildings, plant machinery, and fixtures are entitled to lump-sum depreciation and development rebates. See Inland Revenue Act, No. 4 of 1963, sections 53(2) (a) and (b).
Development Ordinance, 1960, Article 11(3).
For further discussion of these methods, see Organization for Economic Cooperation and Development, Fiscal Committee, Fiscal Incentives for Private Investment in Developing Countries (Paris, 1965), especially pp. 15-22.
Article 8 provides: “This exemption [from income and profits taxes] shall not be granted if the enterprise or its members are subject in other countries to taxes that make the exemption ineffective.”
Joint Tax Program of the Organization of American States and the Inter-American Development Bank, Fiscal Survey of Panama (Baltimore, 1964), p. 173.
Ross and Christensen, op. cit., pp. 72 and 77.
Sheldon L. Schreiberg, “The United States Private Investor and the Central American Common Market,” in U.S. Congress, Joint Economic Committee, Latin American Development and Western Hemisphere Trade, Hearings before the Subcommittee on Inter-American Economic Relationships (89th Cong., 1st Sess.), September 8-10, 1965, p. 272. One producer in Costa Rica remarked: “It wasn’t incentives but the increase of tariffs from 20 to 80 per cent of value on competitive items from outside the area that permitted us to survive.”
This is alleged to be the case in Panama. See OAS survey (cited in fn. 33), p. 173. The UNCTAD report (cited in fn. 4), p. 22, called attention to the unfavorable effects on the industrial structure because “it has encouraged the establishment of small uneconomical plants, weakened the incentive to introduce modern techniques, and slowed down the rise in productivity.”
See Carlos Quintana, “Politica Industrial y Evaluation de Proyectos,” in lnforme del Seminario sobre el Proyecto de Convenio Centroamericano de lncentivos Fiscales al Desarrollo Industrial, Escuela Superior de Administration Publica America Central (San Jose, 1962), pp. 85-103.
Ibid. This report describes in detail the organization, as well as the procedures followed, in Costa Rica, Mexico, and other Central American countries.
United Nations, Economic Commission for Africa, Investment Laws and Regulations in Africa, E/CN.14/INR/28/Rev.2, UN Publication Sale No.: 65. II.K.3 (New York, 1965), p. 6.
This new type of administrative body has been adopted in about 20 countries in Africa (Krishna Ohooja, “Development Legislation in Africa,” The Journal of Development Studies (London), Vol. 2 (1966), p. 306.
Schreiberg, op. cit., p. 272.
S.A. Aluko, Fiscal Incentives for Industrial Development in Nigeria, UN Industrial Development Organization, 1966 (unpublished), pp. 92-99.
J. Harvey Perry, Taxation and Economic Development in Ghana, prepared for the Government of Ghana, United Nations Commissioner for Technical Affairs, Department of Economic Affairs, Report No. TAO/GHA/4/Rev.l, 1959, pp. 43–45.
Schreiberg, op. cit., p. 273.
The necessity for such controls, of course, is greatly reduced in countries such as Pakistan and India, where there are no formal agreements with the government. Nevertheless, even in Pakistan there is the need for an officer to see that the standard conditions of tax exemption are observed; also, monthly reports are required to be filed with the Investment Promotion Bureau as well as with the Director of Industries in the province where the business is located, until the firm begins operation.
Ross and Christensen, op. cit., p. 91; Quintana, op. cit.
According to the Investment Code of 1963 (Law No. 63-277), Article 23: “The state will participate through public investments, by establishing national or mixed economy companies in which foreign or national capital is invested, in order to meet the conditions necessary for the establishment of a socialist economy.”
Scott M. Spangler, “Promoting Private Investment in Less Developed Countries” in Financing African Development, Tom J. Farer, ed. (Cambridge, Massachusetts, 1965), p. 134.
Ibid., p. 136.
Data provided by the Statistics and Publications Division of the Department of Finance and compiled by the Joint Legislative Executive Tax Commission, Manila, Philippines.
Many foreign-based companies operate in Panama only for the purpose of consumating international sales without taking physical possession of the goods. Income of shipping companies also enjoys tax exemption. William J. Gibbons, Tax Factors in Basing International Business Abroad, Harvard Law School, International Program in Taxation (Cambridge, Massachusetts, 1957), pp. 126-32. See also OAS survey (cited in fn. 33).
OAS survey (cited in fn. 33), pp. 171-72.
Ibid., p. 173.
Although this may be reduced to 50 per cent, the reduction has rarely been made.
Jamaica Industrial Development Corporation, Report, 1959-63, and Newsletter, various issues. Not including completion of a large oil refinery, which received a 7-year income tax exemption plus deferred depreciation charges for 15 years. Local employment on this installation is very small.
Paul L. Chen-Young, An Economic Evaluation of the Tax Incentive Program of Jamaica (unpublished dissertation, University of Pittsburgh, 1966), p. 262.
Ibid., p. 289.
Jamaica, Industrial Development Corporation, Statistical Report of Manufacturing Enterprises Approved and Operating under Industrial Incentive Laws, Kingston, 1965 (mimeographed), p. 15.
Industrial Development Corporation, List of Pioneer Manufacturers (published in Trinidad and Tobago Gazette).
Schreiberg, op. cit., p. 272.
Banco Central de Costa Rica, Información Económica Semanal, No. 788, December 1965, p. 1.
Ministerio de Industrias, Contratos lndustriales Otorgados al Amparo de la Ley de Protection y Desarrollo National, 1960-64 (mimeographed).
Secretaria de Industria y Comercio, Memoria de Labores, 1959-64 (Mexico City, 1964), pp. 42-63.
Ross and Christensen, op. cit., p. 89.
Ibid., p. 69.
Ibid., p. 78.
“Fostering Investment in Israel,” Israel Economic Forum, Vol. XII, August 1963, pp. 61-67.
Akiva Ilan, Tax Incentives for Industrial Development in Israel, UN Industrial Development Organization, New York, 1966 (unpublished), p. 104.
“Fostering Investment in Israel,” loc. cit.
Banco Central del Ecuador, Memoria, 1962, p. 115. Only 5 were in the Special Category and 60 in Category A. Category C was abolished in 1964.
Ibid., 1962, p. 251; 1963, p. 46; and 1964, p. 191.
Ibid., 1965, p. 115; Anexos, p. 14.
Ibid pp. 116-17.
Aluko, op. cit., p. 116.
Ibid., pp. 55, 56, and 80.
Ibid., p. 92.
Maroc, Délégation Générate à la Promotion Nationale et au Plan, Plan Triennal 1965-67 (Rabat, 1965), p. 431-32.
Banco Central del Ecuador, loc. cit., 1962, p. 255; 1963, p. 146; 1964, p. 196.
Ibid., 1965, p. 116.
Reserve Bank of India Bulletin, Vol. XVI (1962), p. 1532.
State Bank of Pakistan, Department of Statistics, Foreign Liabilities & Assets and Foreign Investments in Pakistan (1957-1960), (Karachi, n.d.).
The Israel Economist, Vol. XIX (1963), pp. 199-208, and Israel Economic Forum, loc. cit., p. 64.
Jamaica, Industrial Development Corporation, Annual Report.
See fn. 59.
Trinidad and Tobago, Central Statistical Office, Pioneer Manufacturers: Survey of the Finances of 52 Pioneer Establishments 1958/1959, Statistical Studies and Papers, No. 8 (Trinidad, 1961).
Net inflow is estimated at US$29 million in 1962, $90 million in 1963, and $126 million in 1964 (U.S. Department of Commerce, International Commerce, Vol. 71, June 28, 1965, p. 57).
Aluko, op. cit. p. 55.
Ministerio de Economia y Hacienda, Memoria Anual-1964 (San José, 1965), pp. 10, 54, and 56.
Data obtained from the Consumption Tax Department, Ministry of Finance, Costa Rica.
Schreiberg, op. cit., pp. 269-73.
Ross and Christensen, op. cit., p. 136.
Ibid., pp. 149-52.
Ibid., p. 101 (data based on A. R. García Caraveo, La Ley Fomento de lndustrias de Transformatión, thesis, Universidad Nacional Autónoma de México, 1957).
Ibid., p. 104.
Ibid., p. 76.
Ibid., p. 70.
Jamaica, Income Tax Department, Report of the Commission of Income Tax for the Years Ended 31st March, 1961-64.
Data obtained from the Ministry of Finance.
Chen-Young, op. cit., pp. 479-81. Benefits include taxes generated on salaries and wages, corporations, and property; costs cover the corporate and customs taxes exempted as well as the costs of the Industrial Development Corporation, Industrial Training Scheme, and some others.
Ibid., p. 178.
OAS survey (cited in fn. 33), p. 175.
lbid.9 p. 178.
Data compiled by the Joint Legislative-Executive Tax Commission, Manila.
Aluko, op. cit., pp. 58 and 91.
Ben W. Lewis, Incentives for Industrial Development in Nigeria, Ibadan, 1962 (unpublished), pp. 9, 10, and 33 (cited by Aluko, op. cit., p. 101).
Aluko, op. cit., pp. 102-18.
Maroc, Délégation Générale á la Promotion Nationale et au Plan, loc. cit., p. 419, and Le Probléme de l‘Investissement et la Politique Economique (Rabat, 1965), p. 8,
Shun-hsin Chou, The Impact of Fiscal Incentives on the Development of Manufacturing Industries in Taiwan, UN Industrial Development Organization, New York, 1966 (unpublished), pp. 3-29.
Korea, Ministry of Finance, Bureau of Taxation, Yearbook of Tax Statistics, 1965.
According to Chen-Young, op. cit., p. 331: “The most important conclusion … is that despite the relative importance which is generally attributed to the subsidized industries [in Jamaica], this direct contribution to the manufacturing sector in terms of investment, salaries and wages, employment and value added have not been particularly significant….”
This concern was expressed on the occasion of Jamaica’s 1967 liberalization of its incentive laws: “But there is no doubt that other countries also give liberal incentives in order to attract new investments in industry. The whole thing has turned into a race in which countries that want to attract new industries have to be competitive. These are the facts of life with which we must live” (editorial, The Daily Gleaner, Kingston, January 20, 1967).
Federico J. Herschel, Comment on N. Kaldor, “The Role of Taxation in Economic Development,” in Fiscal Policy for Economic Growth in Latin America, papers and proceedings of a conference held in Santiago, Chile, December 1962 and issued by the Joint Tax Program of the Organization of American States, Inter-American Development Bank, and Economic Commission for Latin America (Baltimore, 1965), p. 89.
Ibid., p. 90.
E.R. Barlow and Ira T. Wender, Foreign Investment and Taxation, Harvard Law School, International Program in Taxation (Englewood Cliffs, New Jersey, 1955).
Ibid., p. 215. Italics in original.
Ibid., pp. 451-53.
Yair Aharoni, The Foreign Investment Decision Process (Boston, 1966), p. 241.
United Nations, Economic and Social Council, Economic Commission for Latin America, Report of the Central American Economic Co-operation Committee, E/CN/2/492, E/CN.12/CCE/151, UN publication Sales No.: 58-II.G.3 (Mexico City, 1959), p. 43.
See John W. Crow, “Economic Integration in Central America,” Finance and Development, Vol. Ill (1966), pp. 58-66; Joseph Moscarella, “Economic Integration in Central America,” in Latin American Economic Integration: Experiences and Prospects, Miguel S. Wionczek, ed. (New York, 1966), pp. 273-80; James D. Cochrane, “Central American Economic Integration: The ‘Integrated Industries’ Scheme/” Inter-American Economic Affairs (Washington), Vol. 19, Autumn 1965, pp. 63-64.
Lachman, op. cit. See also Report of the Eighth Session of Central American Economic Co-operation Committee (cited in fn. 20), pp. 56-62; this report contains the background of the Agreement, together with a copy of the Agreement itself.
Cameroon became an associate member of the predecessor Equatorial Customs Union on July 22, 1961 and a full member on December 8, 1964.
Articles 45 and 46.
Established by treaty on June 3, 1966 and entered into force on December 15, 1966, this Union superseded a previous customs union established in 1959 but never fully implemented.
United Nations, Economic Commission for Africa, Co-ordination of Industrial Incentives and Legislation, E/CN.14/RES/140 (VII), 1965.