Tax Holiday

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Definition of 'Tax Holiday'

A tax holiday is a temporary exemption from paying taxes on certain income or activities. Tax holidays are often used to encourage economic development or job creation in a particular area.

There are two main types of tax holidays:

* **Exemption holidays** exempt certain types of income from taxation. For example, a state might offer an exemption holiday for income from new businesses or for research and development activities.
* **Time-limited holidays** exempt income or activities from taxation for a certain period of time. For example, a city might offer a time-limited holiday for new businesses that locate in the city.

Tax holidays can be effective in encouraging economic development or job creation. However, they can also be costly to the government. Therefore, it is important to carefully consider the costs and benefits of a tax holiday before implementing one.

Here are some of the pros and cons of tax holidays:


* Tax holidays can encourage economic development and job creation by making it more profitable for businesses to operate in a particular area.
* Tax holidays can help to attract new businesses and residents to a community.
* Tax holidays can boost the local economy by increasing spending and investment.


* Tax holidays can be costly to the government.
* Tax holidays can lead to unfair competition between businesses that are located in the area where the tax holiday is offered and businesses that are located outside of the area.
* Tax holidays can reduce the government's revenue, which can make it difficult to fund important public services.

Ultimately, the decision of whether or not to offer a tax holiday is a complex one. There are a number of factors that need to be considered, including the costs and benefits of the tax holiday, the economic conditions in the area, and the government's fiscal situation.

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