Tax Incentives in National Investment Laws

The report finds that tax incentives are a primary feature of investment laws in EMDEs, often driven by investment promotion agencies (IPAs) with limited involvement from ministries of finance (MoFs). This institutional disconnect leads to fragmented governance, revenue losses, and increased exposure to investor-state dispute settlement (ISDS) claims. While some countries are moving toward centralizing incentives under unified legal frameworks, monitoring and evaluation mechanisms remain limited and disconnected from policy-making.

• Investment laws are a primary mechanism for granting incentives in EMDEs. Out of 105 surveyed laws, 71 explicitly provide incentives, with a particularly strong trend in Africa and Asia where many laws were enacted in the last decade.
• Tax incentives are the most dominant type of incentive in these laws, appearing in 94% of laws that provide incentives. Tax holidays and rate reductions are the most frequently used instruments, followed by customs duty exemptions.
• There is a significant institutional gap in the design and administration of incentives. Investment promotion agencies (IPAs) typically drive the drafting of investment laws and are most frequently assigned roles in approving and managing incentives, while ministries of finance (MoFs) are less prominently positioned in the legal text.
• Tax incentives often overlap across multiple legal frameworks, such as tax laws and special economic zone (SEZ) regulations. Most countries lack explicit anti-cumulation provisions to prevent investors from claiming multiple benefits simultaneously.
• Embedding tax incentives in national investment laws increases a state's exposure to investor-state dispute settlement (ISDS). National investment laws account for 7% of the instruments cited as the basis of consent in all ICSID-registered cases, with many disputes centering on the withdrawal of unsustainable incentives.
• Monitoring and evaluation of incentives are generally weak and uneven. Less than half of the surveyed investment laws require periodic reviews, and only 18% mandate independent audits to assess revenue foregone.
• Data on revenue foregone is typically produced by tax authorities but is rarely integrated into investment policy-making or shared with IPAs, creating a disconnect between fiscal analysis and investment decisions.
• Some EMDEs are implementing reforms to centralize tax incentives under unified legislation to improve transparency and fiscal discipline. Examples include Ghana's 2022 Exemptions Act and Honduras's proposed Fiscal Justice Law.

APA

Lago, J. D. R. (2026). Tax Incentives in National Investment Laws. International Institute for Sustainable Development. https://www.iisd.org/system/files/2026-04/tax-incentives-investment-laws.pdf

Chicago

Lago, Josefina del Rosario. Tax Incentives in National Investment Laws. International Institute for Sustainable Development, 2026. https://www.iisd.org/system/files/2026-04/tax-incentives-investment-laws.pdf.

Wikipedia

{{cite report |last1=Lago |first1=Josefina del Rosario |title=Tax Incentives in National Investment Laws |publisher=International Institute for Sustainable Development |date=April 2026 |url=https://www.iisd.org/system/files/2026-04/tax-incentives-investment-laws.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{lago2026tax, author = {Lago, Josefina del Rosario}, title = {{Tax Incentives in National Investment Laws}}, institution = {International Institute for Sustainable Development}, year = {2026}, month = apr, url = {https://www.iisd.org/system/files/2026-04/tax-incentives-investment-laws.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }