Portulans Institute Fellow
Tax competition refers to the idea that countries can lower their tax rates in order to attract businesses and investment. In the context of developing countries, tax competition can be used as a tool to improve access to ICT products and ICT industrialization. This can be done by attracting technology companies to invest in these countries. When companies are able to invest in a country with lower tax rates, they produce and sell their products at a lower cost. This means that ICT products can be sold at a lower price, making them more affordable for consumers in developing countries.
Another way that tax competition can improve access to ICT products is by encouraging the development of local technology industries. When countries lower their tax rates, it can create an environment that is more conducive to the growth of local technology companies. These companies can then produce and sell ICT products that are tailored to the specific needs of the local population. Consequently, this can lead to a more diverse and competitive market, which can help to drive down prices and improve access to ICT products.
Moreover, tax competition may promote better access to ICT products by encouraging innovation. When companies are competing with each other to attract investment, they may be more likely to invest in research and development in order to stay ahead of their competitors, leading to the development of new and improved ICT products for consumers in developing countries at a lower cost. In that sense, the Global Innovation Index 2022, published by WIPO in partnership with the Portulans Institute, identified that funding breakthrough innovations and providing business incentives can be done through government tax breaks with a specific purpose in mind. For example, these tax breaks can be used to augment productivity. Productivity gains justify spending on innovation, in light of the new innovation-driven era of high productivity growth and that high-income economies are struggling to replicate their success of the recent past on innovation-driven productivity, according to GII 2022.
Finally, tax competition can solve regional inequalities that affect talent performance. For instance, the Global Talent Competitiveness Index (GTCI) 2022, which is a comprehensive annual benchmarking report that measures how countries and cities grow, attract and retain talent published by INSEAD in collaboration with Portulans Institute and HCLI, found that internal inequalities and talent performance correlate negatively: by and large, countries that rank higher in the GTCI tend to be those with the lower Gini coefficients, which could be strongly dependent on income.
In practice, one example of tax competition being used to improve access to ICT products in a developing country is India. In the late 1990s, India implemented a number of economic reforms, including the reduction of corporate tax rates. This helped to attract technology companies to invest in the country, which led to the growth of the Indian technology industry. As a result, India has become one of the leading producers of ICT products in the world, which resulted in its record of outperforming on innovation relative to its level of economic development for the 12th year in a row, according to GII 2022.
Another example is China, where the government has implemented policies to attract foreign investment in high-tech industries, such as ICT. This has led to the growth of the domestic ICT industry and has made a wide range of technology products available to Chinese consumers at lower prices thanks to its ICT industry advancement. For example, as stated by GII 2022, for the first time, China has as many top 100 science and technology clusters as the United States. Moreover, in Africa, the government of Rwanda has been promoting tax competition to attract investment in the ICT sector by reducing tax rates and providing incentives for companies to invest in the country. This has led to the growth of local technology companies and the development of a more diverse and competitive market for ICT products, making them more affordable for Rwandese consumers.
In conclusion, tax competition can be a powerful tool for improving access to ICT products in developing countries. By attracting investment and encouraging the growth of local technology industries, tax competition can help to drive down prices and make ICT products more affordable for consumers. Additionally, tax competition can also encourage innovation, which can lead to the development of new and improved ICT products. Therefore, developing countries must consider the use of tax competition as part of the toolbox used to improve access to technology through ICT products.
Gabriel Souto is a Brazilian researcher and lawyer, co-founder of the Laboratory of Public Policy and Internet (LAPIN), and international coordinator of the Law Student Ambassador Program of the American Bar Association Section of Antitrust Law. He was a visiting student at the Global Antitrust Law & Economics LL.M. of George Mason University’s Antonin Scalia Law School (2018) and a scholarship recipient for the Columbia Law School Summer Program (2022). He is a Master of Global Affairs candidate at Tsinghua University as a Schwarzman Scholar and has published dozens of papers and a book.