There is significant divergence in India between the official rates of taxes and the actual or effective rate of taxation because of tax exemptions.
Tax expenditure is also known as revenue foregone.
But such forgone taxes do not necessarily mean that they have been waived off by the government. It should be interpreted as incentives given by the govt. to promote certain sectors, in absence of which they may not have come up.
High tax expenditure simply means complex tax system. The tax expenditure can be brought down by simplification in tax system and improvements in the tax administration.
The level of tax expenditure is slated to fall steeply once the GST is ‘fully’ operationalized in the country.
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