AN APPROACH FOR EX-POST CIT GAP ANALYSIS AND EX-ANTE CORPORATE TAX INCENTIVES EVALUATION

Glenn Jenkins (), Owotomiwa C. Olubamiro (), Mikhail Miklyaev and Amin Sokhanvar ()
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Owotomiwa C. Olubamiro: Cambridge Resources International Inc.
Amin Sokhanvar: Cambridge Resources International Inc.

No 2025-03, Development Discussion Papers from JDI Executive Programs

Abstract: This paper provides a comprehensive evaluation of corporate income tax (CIT) incentives in Ethiopia by combining a top-down approach to estimate the CIT gap with ex-ante cost-benefit analysis (CBA) of selected tax expenditures. It introduces a national-accounts-based method to estimate the gross-of-tax return to capital (GTRC), offering a practical benchmark for assessing revenue loss and tax policy efficiency. The analysis reveals a growing CIT gap driven by declining effective tax rates, administrative inefficiencies, and the expanding use of tax incentives. Through case studies in the textile (export-oriented) and rubber/plastic (import-substitution) sectors, the paper assesses the fiscal, economic, and stakeholder impacts of incentives such as income tax holidays and import duty exemptions. Results highlight that while export-oriented incentives can yield significant net economic benefits, incentives in protected import-substitution sectors often result in resource misallocation and fiscal loss. The study emphasizes the need for evidence-based tax policy design, efficient VAT administration, and strategic alignment of incentives with national development goals to ensure economic efficiency and fiscal sustainability.

Keywords: Cost-Benefit Analysis (CBA); Corporate Income Tax (CIT); Fiscal Policy; Tax Incentives; Tax Expenditure Analysis (search for similar items in EconPapers)
JEL-codes: H2 H3 H4 H5 O2 O5 (search for similar items in EconPapers)
Pages: 30 Pages
Date: 2025-02-05
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:qed:dpaper:4628

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