Concept of Tax Expenditure

Concept of Tax Expenditure

Tags:      Gig Economy     Economy     WTO     WTO Public Stockholding     MSP     Economic Growth     Masala Bond     Environmental Performance Index     Forecast of Economic Growth     Functions of the Finance Commission

The government's expenditures for collecting taxes are not referred to as Tax Expenditure. Instead, it refers to the expense of providing taxpayers with exemptions, deductions, rebates, credits for deferring taxes, and so on—or the opportunity cost of taxing at lower rates. The amount of additional money the government could have received if such policies had not been implemented is shown by tax expenditures. To put it another way, it can be thought of as losing money. The most notable aspects of the tax expense are as follows:

1. Tax expenditure occurs whenever a sector's ability to thrive is harmed by an increase in the tax burden to the point where it has an effect on its survival. These might come in the form of tax rates that are lower than usual.

2. They are taken in an effort to lessen the impact of oppressive taxes, which are responsible for revenue losses due to tax provisions.

3. They work toward social objectives without spending any money.

4. They are given as tax breaks for specific purposes.

5. Tax provisions that reduce the present value of taxable income through deferral allowances, special exclusions, exemptions, and other means are examples of tax expenditure.

6. Similar to subsidies, many view it as a wasteful practice.

7. For instance, according to the Income Tax Act, each taxpayer is eligible for a Rs. 12500, which is the amount that the government spends on taxes.

Budget for Taxes and Other Expenses

1. It is made up of the revenue losses that result from the tax code's various exclusions, exemptions, deductions, and credits that are not refundable, among other things.

2. Individuals and businesses that engage in particular kinds of activities will find that their income tax obligations will be less burdensome as a result of these provisions.

Impact of Tax Expenditure

1. Tax Expenditure is the revenue that the government saves by allowing taxpayers to deduct, exclude, or exempt certain expenses from their taxable income.

2. An estimate suggests that the lost revenue could amount to nearly 6.5% of GDP.

3. Vested interests can also use this as a way to practice crony capitalism and give corporations too many favors.

International Tax Expenditure Experience

1. It was estimated that such expenditures amount to up to 10% of GDP in a report titled Tax Expenditures in OECD Countries, which details such expenditures in 10 OECD member countries.

2. When evaluating their tax expenditures, numerous nations adhere to the OECD's definition. In Irish law, for instance, a tax expenditure is defined as a transfer of public resources made possible by lowering tax obligations in relation to a benchmark tax rather than by direct expenditure;

3. Legislation that reduces or delays tax revenue for a relatively small number of taxpayers in relation to the tax base.

In conclusion, it is important to note that tax expenditures are frequently viewed as alternatives to direct spending programs or regulations in order to achieve objectives like social welfare, among others. They are taken in an effort to lessen the impact of oppressive taxes, which are responsible for revenue losses due to tax provisions. As a result, they contribute to the advancement of social objectives without incurring direct costs.