This week I spoke at @wataf event on tax expenditures in West Africa w/ terrific speakers incl. @MustaphaNdajiwo @kibobofred @attiyawaris. Focus on how to curb poorly targeted, wasteful or ineffective exemptions – critical part of fiscal response to Covid. Some highlights[thread]

First, good news: more and more countries (at least on paper) are adopting potentially valuable new strategies, incl. a single centralized process for granting incentives, focusing on cost based, time limited, well monitored measures, and annual reporting in the budget.

@MustaphaNdajiwo highlighted that Nigeria will publish a tax expenditure report for the first time this year. Daniel Nuer from MoF TPU in Ghana described efforts to centralize granting of incentives with MoF and the Ghana Revenue Authority. All very positive.

However, progress in practice often more limited. Gov’ts struggle to centralize granting of incentives in practice because of poor data sharing and monitoring. And tax expenditure reports often do not contain/reveal information needed to ensure effectiveness and accountability.

While tax expenditures reports through budget are critical, the details matter enormously in whether there is meaningful transparency – transparency that provides the right kinds of information, in accessible format, to allow for accountability and oversight. What is required?

First, disaggregate different types of tax expenditures. Headline figures – Country X spends Y% of GDP in tax expenditures - are often not that revealing, because they do not distinguish between more and less problematic expenditures – or allow for identifying the latter.

VAT exemptions for essential goods are very different from incentives to attract investors. Among investors incentives, standardized incentives are generally better than firm specific. Time limited better than permanent. Cost based better than profit based Etc… @MustaphaNdajiwo.

But tax expenditure reports often do not draw those distinctions clearly. Parliaments and others need to be able to see expenditures by broad “types”, and then also by individual firms, to understand who is benefiting, how much, why and what should change.

Data should minimally report (a) which firms receive which exemptions, (b) the difference between the tax that would be owed without the exemption and what is actually paid, (c) the time period of the exemption, and (d) the rationale for the exemption/incentive, all by each firm.

Some argue such data is too simplistic and gov’ts should report more sophisticated cost-benefit analysis. But don’t let perfect be the enemy of the good. Simple descriptive data is hugely useful, and immediate – sophistication can obscure or be an excuse for foot dragging.

Why is this so important? Without this kind of detail it is impossible to identify the most problematic incentives/exemptions to eliminate. For govt’s publishing some data – but not the data that matters – can be a strategy to appear transparent but avoid real accountability.

Meanwhile, headline figures without disaggregation can be a risk for researchers and civil society as well – when we quote a single national figure on tax expenditures we often are not comparing apples to apples.