Tax Incentive Law and Legal Definition

Tax incentive is a feature of the taxation system that encourages or discourages certain economic activities. It can be an inducement offered in the form of abatement of taxes. For example, tax holidays. A tax holiday offers a period of exemption from income tax for new industries in order to develop or diversify domestic industries. Governments usually create tax holidays as incentives for business investment. Other common tax incentives are depreciation allowances and tax credits.