What Is Tax Expenditure Upsc?

What is meaning of the term tax expenditure?

Tax expenditures are government revenue losses from tax exclusions, exemptions, deductions, credits, deferrals, and preferential tax rates. They are a counterpart to direct expenditures, in that they both are forms of government spending.

What is the purpose of tax expenditure?

Tax expenditures are provisions of the tax code that can reduce how much a taxpayer owes and therefore federal revenue. Examples include special tax credits, deductions, exclusions, exemptions, deferrals, and preferential tax rates. Tax expenditures have the same net effect on the federal budget as spending programs.

Who benefits from tax expenditures?

In practice, except for refundable tax credits like the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC), tax expenditures primarily benefit the top 20% of households. That’s why tax expenditures have often been referred to as “welfare for the upper middle class.”

What are the largest tax expenditures?

The largest tax expenditure (an estimated $190.3 billion in fiscal year 2021 is the exclusion of employers’ contributions for employees’ medical insurance premiums and medical care.

What type of tax is expenditure tax?

The expenditure tax, sometimes referred to as a “spendings tax,” closely resembles the income tax except that the tax base is spending, not income. It is levied directly on the taxpayer and involves taxpayers filing annual returns with exemptions and deductions.

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What is expenditures in simple words?

Expenditure is the spending of money on something, or the money that is spent on something.

Who introduced expenditure tax?

The expenditure tax was first introduced by T. T. Krishnamachari (then Finance Minister) in 1957. After being abolished in 1962 by Morarji Desai, it was brought again in 1964. It was finally abolished in 1966 after which Chaudhary Charan Singh tried to bring it again in 1979 but failed.

What is expenditure tax vs income tax?

Expenditure tax was abolished with effect from the financial year 2017-18. The difference between income tax and expenditure tax: Expenditure tax was levied on the total expenditure of an individual in a financial year, whereas income tax is levied on the income of an individual in a financial year.

What is expenditure tax and how it is calculated?

Expenditure Tax is collected from the person running the business (hotel and/or restaurant) as the case may be, when he or she provides the services that are result in “chargeable expenditure”. Expenditure Tax is collected at the rate of 15% from restaurants when it renders services deemed taxable.

Are tax expenditures good?

Broadening the tax base and taxing all forms of income at the same rate—that is, closing tax expenditures—is generally the right direction for tax reform, and it has much to offer. It raises efficiency by eliminating the need to choose based on tax considerations.