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Tax Expenditures

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(Created page with "Tax Expenditures, as the word might indicate, does not relate to the expenditures incurred by the Government in the collection of taxes. Rather it refers to the opportunity cost...")
 
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==Contributed by==
 
==Contributed by==
 
* [http://www.ies.gov.in/myaccount-profile-view.php?memid=338 Rosemary Abraham, IES(2006)]
 
* [http://www.ies.gov.in/myaccount-profile-view.php?memid=338 Rosemary Abraham, IES(2006)]
 
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*Email- [mailto:rosemary.a@nic.in rosemary.a@nic.in]
 
[[Category:concepts|Tax Expenditures]]
 
[[Category:concepts|Tax Expenditures]]

Revision as of 10:05, 10 April 2015

Tax Expenditures, as the word might indicate, does not relate to the expenditures incurred by the Government in the collection of taxes. Rather it refers to the opportunity cost of taxing at concessional rates, or the opportunity cost of giving exemptions, deductions, rebates, deferrals credits etc. to the tax payers. Tax expenditures indicate how much more revenue could have been collected by the Government if not for such measures. In other words, it shows the extent of indirect subsidy enjoyed by the tax payers in the country.

Tax expenditures or the revenue forgone are sanctioned in the tax laws. A statement of the same, (as far as Federal / Union / Central Government is concerned) is presented to the Parliament at the time of Union Budget by way of a separate budget document titled “Statement of Revenue Foregone”. It lists the revenue impact of tax incentives or tax subsidies that are part of the tax system of the Central Government. This document also estimates the revenue to be foregone during the proposed financial year on the basis of the revenue foregone figures of the previous financial year.

The estimates and projections in the Statement of Revenue Forgone indicate the potential revenue gain that would be realized by removing exemptions, deductions and such similar measures. The estimates are based on a short-term impact analysis. They are developed assuming that the underlying tax base would not be affected by removal of such measures. As the behaviour of economic agents, overall economic activity or other Government policies could change along with the elimination of such measures, the actual revenue implications could be different to that extent.

The cost of each tax concession is determined separately, assuming that all other tax provisions remain unchanged. Many of the tax concessions do, however, interact with each other. Therefore, the interactive impact of tax incentives could turn out to be different from the revenue foregone calculated by adding up the estimates and projections for each provision.

The assumptions and methodology adopted to estimate the revenue foregone on account of different tax incentives are indicated at the relevant places in the Revenue Forgone Statement.

Tax expenditures or revenue foregone statement was laid before Parliament for the first time during Budget 2006-07 by way of Annex-12 of the Receipts Budget 2006-07. This gave credence to the Government’s intention of bringing about transparency in the matter of tax policy and tax expenditures. The practice has been continuing since then and is submitted as a separate document since 2007-08.


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