Economy / Taxation / Tax Expenditure...
Tax Expenditure...
- Definition:
- Tax expenditure refers to the revenue forgone by the government due to exemptions and concessions provided in both direct and indirect taxes. This concept is aimed at capturing the potential government revenue that is not collected due to various tax incentives and breaks.
- Statement on Tax Expenditure:
- The government has been presenting a Statement on tax expenditure in the parliament since the 2006-2007 union budget. This statement outlines the estimated revenue foregone due to tax incentives and exemptions.
- Scale of Tax Expenditure:
- In the fiscal year 2015-2016, the revenue foregone due to tax incentives was substantial, amounting to nearly 6 lakh crores. These exemptions are often introduced to achieve various socio-economic objectives.
- Justifications for Tax Exemptions:
- Tax incentives are often justified for several reasons:
- Balanced Regional Growth: Promoting balanced growth across regions.
- Industrial Dispersal: Encouraging the dispersal of industries.
- Neutralization of Location Disadvantages: Offsetting disadvantages due to location.
- Priority Sectors: Providing incentives to priority sectors, including infrastructure.
- Social Welfare: Offering benefits to the middle class, senior citizens, women, etc., for specific purposes like home buying.
- Sunset Clause Recommendation:
- Due to the substantial amount involved and the possibility of some incentives losing their relevance, there is a suggestion to introduce a sunset clause. This would mean that tax exemptions should operate for a limited time and be subject to periodic review.
- Challenges and Distortions:
- Resource Allocation Distortions: Excessive tax exemptions can distort resource allocation and hinder productivity.
- Administrative and Legal Complexities: Multiple rates, legal complexities, classification disputes, and litigation can arise from a plethora of tax incentives.
- Rationalization Benefits:
- Rationalizing these exemptions could have several benefits: #BBD0E0 »
