WORLD Economic Forum (WEF) has pitched for a stable, fair and
transparent tax regime in all countries to reduce the global investment
shortfall in infrastructure estimated at US$ 1 trillion per annum.
In a
report captioned ‘Infrastructure Investment Policy Blueprint' released on 11 th
February, WEF says: “Taxes should not systematically give advantage or
disadvantage to certain types of investors. They also should be stable over
time. The holistic impact of all forms of taxes should be assessed, based on the
financial viability of projects.”
It
notes that foreign investors are commonly taxed at higher levels due to specific
legal provisions. This can considerably diminish competition and deter
investment. Given the long-term nature of infrastructure financing, changes in
tax policy over time pose a significant risk. Special taxes related to a
specific project or industry can effectively be a form of renegotiation risk.
Governments can consider mitigating this risk through tax stabilization or by
guaranteeing a maximum tax rate for the life of the project.
While
calling for holistic assessment of the impact of all taxes on any project's
financial viability, the report says: “Besides income taxes, many other
taxes can affect a project, including those for property, sales, capital goods
and raw materials, as well as city, state and regional taxes. The aggregate
level of taxes may be perceived as uncompetitive or inefficient. Governments
therefore should review the total potential impact of a collective tax regime on
infrastructure projects and investors.”
It
adds: “Tax holidays or incentives are often used to attract investment in
certain regions, facilities or geographies. Government should carefully consider
the effectiveness and value of various tax incentives, and assess whether they
are truly required.”
The
report has concluded that the governments seeking higher levels of private
investment in infrastructure should undertake several actions. By developing a
strategic vision, policy-makers can cultivate an overarching view of
infrastructure needs and an ongoing project pipeline, signaling the seriousness
of their intent to investors. By addressing political and regulatory risks,
streamlining procurement and permitting processes and re-evaluating tax policy,
governments can show that they understand investor expectations and needs.
It
adds: “by developing investor value propositions for individual projects
with appropriate risk return trade-offs, policy-makers are most likely to
structure bankable projects that attract high-quality bids.”
According to the report, around the world, governments face an acute need
for new or modernized infrastructure. The estimated shortfall in global
infrastructure debt and equity investment is at least US$ 1trillion per year.
Many investors, particularly long-term ones such as pension funds, insurance
companies and sovereign wealth funds, want to allocate more capital
infrastructure but struggle to find bankable projects. In short, a significant
mismatch exists between the need for infrastructure projects and capital made
available by investors.
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