IGCSE/ A-Level Revision Questions

Tax incentives can be a decisive factor in where MNCs choose to locate, but the benefits are not uniform. The table below outlines the principal advantages and disadvantages for each party.

Perspective

Advantages

Disadvantages

Host Government

Attracts foreign direct investment (FDI).

Creates jobs and can stimulate technology transfer.

Potentially increases future tax revenue once incentives expire.

Immediate loss of tax revenue.

Risk of a “race to the bottom” with competing jurisdictions.

Possible public criticism if incentives are seen as corporate welfare.

Multinational Corporation

Reduces operating costs and improves profitability.

Enhances competitiveness against rivals.

Facilitates entry into new markets with lower financial risk.

May create dependency on incentives, reducing flexibility.

Potential reputational damage if perceived as exploiting tax breaks.

Obligations to meet performance criteria attached to incentives.

Overall, while tax incentives can attract MNCs and generate long‑term economic benefits, governments must balance short‑term revenue loss against the broader strategic objectives of sustainable development.

Business – 6.1 External influences – International | e-Consult

6.1 External influences – International (1 questions)

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