Which of the following best describes Tax Expenditure ........

Economic Affairs Tax System

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Which of the following best describes 'Tax Expenditure'?

It is the expenditure incurred by the government during collection of tax.

It is the revenue forgone by the government on account of exemptions on income and corporate tax.

It is the revenue forgone on account of exemptions on indirect taxes.

It is the expenditure made by the government from the income accrued through taxes.

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Explanation:

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.