Tax incentives

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 10. What do you mean by tax incentives?

Tax incentives are government measures used to encourage specific behaviors. They allow individuals or businesses to pay less tax by exchanging a desirable action—such as creating jobs, investing in renewable energy, or saving money for retirement—for financial rewards. [1, 2, 3, 4]



Common Types of Tax Incentives
  • Tax Credits: A dollar-for-dollar reduction of your total tax bill (e.g., a $\ $500 credit reduces your tax owed by \ $500).
  • Tax Deductions: An expense you subtract from your taxable income, lowering the amount of money the government taxes.
  • Tax Exemptions: Specific income or transactions that are not taxed at all.
  • Tax Holidays: Temporary periods where businesses pay no or reduced taxes to encourage them to build in a specific region. [5, 6, 7, 8, 9]
Real-World Example


Imagine you want to buy solar panels for your home. Buying solar panels reduces pollution, which is a goal the government supports. To encourage you, the government offers a ** 30% tax credit**. If the solar panels cost $10,000, the government lets you subtract $3,000 from your tax bill. [7, 10, 11, 12]


For more details on specific tax perks, you can explore the UNFCCC Tax Incentives Overview or review how the OECD Evaluates Investment Tax Incentives.





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