Tax holiday

A tax holiday is a period during which a business is allowed to operate with little or no income tax obligation. Governments provide this temporary relief to stimulate economic activity—such as encouraging companies to set up new facilities, invest in underdeveloped regions, or bring in foreign capital. By lowering the early-stage tax load, a tax holiday lets businesses channel more money into building capacity, hiring people, and scaling their operations. These incentives are especially common in zones designated for economic development or innovation.

Example: Suppose a company opens a new plant inside a Special Economic Zone. The government may grant it a five-year tax holiday, meaning profits earned during those years are not subject to income tax. The company can then use the saved tax amount to modernize equipment or expand production.