Sample Essay

The overall aim of these incentives is to support and stabilize economic development in the country. Proponents of tax incentives regard tax cuts and tax holidays as a major technique for boosting economic activity and development. Permanent tax cuts are more beneficial to an economy rather than temporary benefits as tax savings from permanent tax cuts have a higher probability of reinvestment in business and production[1].

The opponents of tax cuts identify several problems with the technique which include inequality in the economy and practical inefficiency of government in cutting spending. It has also been seen that cutting taxes does not usually increase the amount of investment especially in developing countries[2].
Although opponents of tax cuts indicate various problems in providing tax relief to businesses and imply that cutting taxes does not always entail increased investment but in the case of Singapore the benefits of tax cuts could be identified clearly as the economy of the country grew with a stable rate attracting Foreign Direct Investment coupled with growth in financial, manufacturing and services sector. This not only improved the investment climate in the country but also improved the level of exports and employment conditions as a significantly large number of jobs were created in the decade after enactment of Economic Expansion Incentive Act in Singapore[3].

[1] Larson, J. S. “Tax Cuts: Issues and Analyses”. Hauppauge: Nova Publishers, 2003.

[2] Holland, D., and R. J. Vann. “Income Tax Incentives for Investment”. Interpretation of Law, Washington D.C.: International Monetary Fund, 1998.

[3] Bercuson, K., and R. G. Carling. “Singapore: A Case Study in Rapid Development”. Washington D. C.: International Monetary Fund, 1995.

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