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Trends and Patterns of Tax Expenditures on Union Taxes in India

Author

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  • Mukherjee, Sacchidananda

    (National Institute of Public Finance and Policy)

Abstract

The Union government foregoes revenue on account of various tax exemption/incentive schemes promoted for various purposes. The Constitution of India assigns power of taxation of broad-based taxes to the Union (Federal) government (e.g., Corporate Income Tax, Personal Income Tax, Union Excise Duty, Customs duty). Like the Union government, provincial (or State) governments also provide tax incentives (within the scope and coverage of their taxation power) but revenue impacts (or foregone) of those tax exemption schemes at the state level are not assessed yet. Comprehensive assessment of tax expenditures is important especially after the introduction of Goods and Services Tax (GST). Given the data limitations, the present paper assesses the trends and patterns (structure) of tax expenditures of Union taxes during 2005-06 to 2019-20. Overall tax expenditures of the Union government declined from 8.15 per cent of GVA (Gross Value Added) in 2008-09 to 1.69 per cent in 2019-20. It was possible mainly on account of continuous reduction of tax expenditures on indirect taxes. Tax expenditures on direct taxes (on account of CIT and PIT only) also declined from 32.7 per cent of direct tax (CIT PIT only) collection in 2008-09 to 22.4 per cent in 2019-20. The tax expenditures related to Union Excise Duty (UED) and Customs Duty (CD) declined from 152 per cent in 2008-09 to 12.6 per cent of tax collection on account of UED and CD in 2019-20. Post Global Financial Crisis (GFC) successive Union budgets raised standard rate of excise duty gradually to pre-GFC level, pruned down the exemption list and consolidated rate structure of excise duty (or CenVAT) to prepare for introduction of GST. This helped the government to contain tax expenditures on indirect taxes.

Suggested Citation

  • Mukherjee, Sacchidananda, 2022. "Trends and Patterns of Tax Expenditures on Union Taxes in India," Working Papers 22/380, National Institute of Public Finance and Policy.
    • Handle: RePEc:npf:wpaper:22/380
    Note: Working Paper 380, 2022
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    References listed on IDEAS

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    Cited by:

    1. Korgaonkar, Chinmay N, 2022. "The Determinants of Tax Morale in India," Working Papers 22/381, National Institute of Public Finance and Policy.

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    More about this item

    Keywords

    Tax Expenditures ; Tax Incentives ; Tax Policy ; Federal Government ; Union Taxes ; India;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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