Tax expenditure is the revenue foregone as a result of exemptions and concessions. Tax expenditure was introduced for the first time in 2006-07 union budget. Tax expenditure is justified on following grounds:
- Act as an incentive for priority sector like infrastructure.
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promotes balance regional growth
It neutralise the disadvantage on account of locationIt provides opportunity to new industries to grow and flourish.
But tax expenditure has its own demerits. As it leads to:
- Multiplicity of tax rates.
- Complex taxation system
- Litigation increases and it leads to increase in disputes.
- Absence of sunset clause lead to its perpetuation
- Can distort resource allocation and stunt productivity
- Decrease in the quantum of revenue.
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