Sustainable Investment Policy Perspectives of the East African Community

Annex B. Additional details on classifications

The ITID considers policy area being targeted by evaluating whether a specific design or eligibility condition of the tax incentive relates to one of six policy goals. Column 1 of the below table lists policy areas identified in the ITID. The clusters build on those identified in the OECD FDI Qualities Indicators and the FDI Qualities policy toolkit. The table identifies how economies target these respective clusters, either through eligibility conditions or the design features of tax incentives (columns 2-5).

Table A ‎B.1. Targeting sustainable development through eligibility conditions and design dimensions of investment tax incentives

(1) Sustainable Development Areas	(2) Outcome condition	(3) Sector condition	(4) Preferential treatment for certain qualifying income	(5) Preferential treatment for certain qualifying expenditure
Employment & job creation	(a) Create a minimum number of new jobs;			(a) Wages of newly created jobs; (b) Wages of recent graduates; (c) Wages of employees, including for women or workers with disabilities.
Environmental impact	(a) Ensure some or a certain level of energy efficiency improvement.	(a) Electricity generation from renewable energy sources;1 (b) Waste management.		(a) Acquisition of machinery for electricity production from renewable energy sources; (b) Improving the energy performance of machinery or buildings (e.g. via building retrofitting).
Job quality and skills	(a) Reach a minimum level of expenditure on training and education; (b) Pay an average wage at a certain level.			(a) Expenditure on training and education of employees; (b) Wages of trainees and apprentices; (c) Training expenditures for women re-entering the workforce or workers with disabilities; (d) Expenditures related to building training facilities.
Local linkages	(a) Source a minimum share of inputs from the local market; (b) Source a minimum share of inputs from local SMEs.			(a) Expenditures on inputs sourced from SMEs.
Promoting Exports	(a) Achieve a minimum export share in sales.		(a) Income from exports; (b) Income from transit trade.	(a) Export promotion expenditure.2
Social Inclusion	(a) Employ a minimum share of female workers; (b) Employ a minimum share of workers with disabilities; (c) Founding members of a company must be people with disabilities.			(a) Wages of female workers or workers with disabilities; (b) Training expenditures for women re-entering the workforce or workers with disabilities.

Notes: Eligibility conditions and design features listed in the table are used by at least one economy included in the database. The list may evolve in the future when economy coverage extends.

1. Includes only tax incentives benefiting electricity generation from renewable energy sources, but not electricity generation from non-renewable sources. Tax incentive may be part of a broader special regime that benefits other sector of the economy.

2. Refers to expenses incurred for the purpose of seeking opportunities and promoting the export of goods or services produced in the economy (e.g. publicity and advertisements abroad, export market research, participation in trade fairs amongst others).

Other policy goals commonly targeted with tax incentives relate to infrastructure and innovation. Infrastructure can relate to a broad set of areas, including transport, utilities (e.g. electricity or gas distribution, water and sewage disposal structures), construction or ICT. CIT incentives promoting innovation commonly target R&D-related costs (e.g. wages of R&D employees, current costs of R&D projects, assets) or certain types of income (e.g. income from R&D or registered patents).