What is tax expenditure?

Overview of Tax Expenditure The emergence and development of the concept of tax expenditure. Most people may take it for granted that the tax system is only a tool for the government to increase fiscal revenue. However, due to some reasons, sometimes the government has to pass legal provisions in advance to give part of the tax payable to taxpayers free of charge. This kind of preferential policy is realized by the tax authorities in accordance with the law, and its essence is that the government gives up part of its fiscal revenue. Therefore, it can be said that the implementation of tax incentives by the government is a hidden channel for the allocation of national financial resources and a kind of financial expenditure. Some countries include tax expenditures in government budgets. Obviously, this kind of fiscal expenditure is different from the usual fiscal expenditure, and it is an indirect expenditure carried out by the government through the tax system. However, the specific effect of this indirect expenditure and its role in the national financial management system have long been ignored. It was not until the 1960s that the financial departments of some capitalist countries paid attention to it. 1967, Stanley S. Surrey, an official of the U.S. Treasury Department and a former professor of Harvard Law School, first put forward the concept of "tax expenditure", which was formally incorporated into the U.S. federal budget management system in 1968. Since then, the concept of tax expenditure has been rapidly popularized and applied. Starting from 1975, all budgets of the U.S. federal government require a special analysis of tax-related expenditures, explain the concept of tax-related expenditures, and provide a detailed list of tax-related expenditures of income tax. From 65438 to 0979, the Canadian government published the most comprehensive catalogue and analysis of tax preferences for federal income tax and commodity tax system. In the same year, the British government also incorporated the tax expenditure catalogue into the fiscal expenditure plan, and many countries followed suit. At the same time, the concept of tax expenditure has also aroused widespread concern in the international fiscal and taxation circles. 1976 institute of international finance (IIPF) and 1977 international taxation association (IFA) both listed tax expenditure as the main topic of discussion at the annual meeting. From 65438 to 0984, financial scholars from six OECD countries completed their first comprehensive research on tax expenditure. The above proves that the concept of tax expenditure is more and more recognized in the budget policy and tax policy. Although the concept of tax expenditure has long been formed in many countries, it only came into being in China in the early 1980s. Around 1984, the idea of tax expenditure began to sprout in China, which originated from the influence of economic practice. On the one hand, tax has become the main form of fiscal revenue. On the other hand, the scope and scale of tax reduction and exemption are getting larger and larger, coupled with the high use of bank funds by local governments and the tight national finance, the problem of tax reduction and exemption is prominent. At that time, it was called "tax expenditure" and "second fiscal expenditure". With the deepening of understanding, people realize that this kind of fiscal expenditure in the form of tax is not only tax reduction and exemption, but also preferential tax rates and other categories, which triggered a leap in thought and the concept of "tax expenditure" appeared. 1985 Beijing and Dalian tried out "target management of tax reduction and exemption", 1989 State Taxation Administration of The People's Republic of China and China Taxation Institute listed it as a key research topic. With the gradual introduction of foreign research materials, the research of national tax expenditure in China has been further stimulated. Second, the definition of tax expenditure To give a more accurate definition of tax expenditure, we must fully understand the tax structure. Any tax system consists of two parts: one part is the items necessary to implement the normal tax structure, including the provisions on taxpayers, tax targets, tax bases, tax rates, tax payment periods and collection management of various taxes, which constitutes the fiscal revenue function of taxation; The other part is some special clauses that deviate from the normal tax structure, such as tax reduction and exemption, which leads to taxpayers paying far less taxes than the normal tax structure. It is usually called tax preference or tax subsidy to benefit individuals in a specific industry, behavior or class. Its utility lies in coordinating with the implementation of the government's overall fiscal expenditure plan, so it is different from the normal tax structure and can be regarded as a supplement to the normal tax structure. These special clauses imply the fiscal expenditure function of taxation. This fiscal expenditure function of tax is manifested in many forms, such as permanent exclusion from "income", exemption and extension of tax burden, tax deduction, application of reduced special tax rate and so on. However, no matter what its form of expression is, it is ultimately reflected in the government's intervention in economic and social life through the tax system rather than through direct subsidies, loans or other forms of assistance, so as to achieve the goal that the country wants to achieve. We call this fiscal expenditure function of taxation tax expenditure, that is, fiscal expenditure realized through taxation. Tax expenditure is a way for the government to achieve public policy objectives. In many cases, it can be regarded as a substitute tool for other policy tools adopted by the government to achieve the same policy objectives, such as direct payment and control of funds. Many examples can illustrate the similarity between tax expenditure and direct expenditure. For example, medical expenses are paid by the government directly for the medical care plan, and medical insurance premiums paid by enterprises for employees are deducted from personal tax income when taxation is imposed, which reduces personal expenses. Tax expenditure is a normal consequence of the promulgation of laws by the state, and it does not need to be submitted to the parliament for deliberation year by year, nor does it need to be subject to regular annual review. However, when making major decisions on the overall level of tax revenue, it is generally necessary to summarize and comment on tax expenditures. In short, tax expenditure is a tax exemption that does not belong to the basic structure of a tax. It is the government expenditure to achieve economic and social goals through the tax system. The characteristics of tax expenditure Although tax expenditure is also a kind of financial expenditure, it has its own characteristics compared with other economic categories such as direct expenditure and negative income tax. (1) Tax expenditure and direct expenditure The similarity between tax expenditure and direct expenditure is: (1) Free of charge. From the direct process and microscopic point of view, after a certain amount of funds are arranged in the current budget, they are not required to be returned, nor do they need interest like bank loans, but they are free, and so are tax expenditures. ② The effect is the same. The result of direct expenditure and tax expenditure is that the financial resources of beneficiaries increase, while the financial resources of the country directly decrease. (3) the purpose is the same. Whether it is direct expenditure or tax expenditure, their purpose is to develop economy and society. (4) The impact on fiscal balance is the same. Under the premise of other conditions unchanged, the amount of tax expenditure directly affects the amount of tax revenue, thus restricting the budget revenue, that is to say, tax expenditure affects the fiscal balance from the aspect of "income"; In the case of a certain budget income, the amount of direct expenditure determines whether the fiscal revenue and expenditure can be balanced from the aspect of "expenditure". However, tax expenditure is not completely equivalent to direct expenditure. Compared with it, it has its own characteristics: (1) timeliness. Tax expenditure has a high correlation with beneficiaries, and taxpayers themselves directly benefit. Compared with direct expenditure, the difference between tax expenditure and direct expenditure is that the former has no time lag effect, while the latter has the inherent backward effect of fiscal policy. Because of this difference, many countries prefer to use tax expenditure. At the same time, tax expenditure is an incentive measure and can only be used as a short-term tool. If its incentive objects and means remain unchanged for a long time, it will inevitably distort the fairness of resource allocation and income distribution and undermine the balanced growth of the national economy. Therefore, the adoption of tax expenditure is of course beneficial to the realization of specific goals, but it must also take into account the possible inefficiency and unfairness. (2) extensiveness. The tentacles of taxation are everywhere. Where there are economic activities, there are taxes, so tax expenditure is extensive, much wider than the scope of fiscal expenditure. (3) elasticity. The economy acts on taxes, and taxes react on the economy. Tax expenditure can be treated according to specific problems, and can be tailored to local conditions and targeted at taxpayers, thus maintaining the stable development of the economy. (4) Indirectness. Compared with the current general budget expenditure, tax expenditure can be found to be indirect, which is called the government's hidden budget and invisible budget. Therefore, in its practical application, people are most concerned. (II) Tax Expenditure and Negative Income Tax In order to make the tax system a more effective tool to promote the fair distribution of income, people put forward the proposal of "negative income tax", that is, to further extend the progressiveness of the current personal income tax to the lowest income class and provide assistance to taxpayers whose personal taxable income is below a certain level, that is, when the so-called low income reaches a certain level, taxpayers can get an extra cash subsidy income from the tax authorities, and the amount depends on the personal taxable income. Therefore, although tax expenditure and negative income tax are both government transfer expenditures, they are two different concepts. First of all, tax expenditure refers to the taxpayer's tax obligation, which is reduced or exempted by the government in order to encourage or take care of certain activities and collect less taxes; Negative income tax means that if a family's income is not enough to reach a low income level, it can enjoy the "negative income tax" payment to make it reach that level. Negative income tax actually provides a guaranteed minimum income. Therefore, when the negative income tax is implemented, the government will not only get no tax, but also increase a transfer expenditure. Therefore, tax expenditure is tax expenditure, while negative income tax is an extra-tax expenditure; Tax expenditure embodies the economic adjustment function of tax, which has both care and encouragement, while negative income tax is completely based on care and tax relief. It tries to combine the tax system with the social welfare system by using the personal income tax system. Secondly, tax expenditure is in terms of the whole tax system, which exists in commodity tax system, income tax system, property tax system, etc., and its scope of action is the whole national economy, while negative income tax is only in terms of personal income, which only works for individuals and involves a small scope. (3) Tax expenditure and non-tax, non-tax or non-tax items refer to some people who do not bear the tax obligation, or some income, income and property are generally considered not to be taxed, so the provisions of the tax law can be excluded, which is called "non-tax items". Therefore, non-tax expenditure is different from tax expenditure. First of all, for taxpayers, non-tax means that there is no tax obligation, and tax expenditure means that although there is tax obligation, due to the implementation of preferential policies, the tax payable has not been paid; Secondly, for income, income and property, non-taxation means excluding them from the taxable object, and tax expenditure occurs in the taxable object itself. Without taxable objects, there will be no tax expenditure. In short, non-tax is something outside the taxable scope, and tax expenditure occurs within the taxable scope. Although the tax burden is reduced, one is outside the tax and the other is inside the tax, which is quite different in nature. Four-tax expenditure principle Tax expenditure is an economic means based on people's understanding of objective economic laws, which embodies people's subjective will, but the objective laws are not transferred by people's will. If people are divorced from economic laws, it will be counterproductive to misuse fiscal expenditure. In order to make tax expenditure play its due role, the following principles should generally be followed: (1) the principle of moderation. Under certain social and economic conditions, tax revenue and tax expenditure increase and decrease each other. Therefore, tax expenditure must be measured. First of all, the implementation of tax expenditure should first consider the government's financial affordability. If the national fiscal revenue is greatly affected by tax expenditure, it will inevitably bring difficulties to the national finance. Secondly, we can't just consider the material interests of enterprises and give tax expenditures casually. Otherwise, not only can we not give full play to the role of tax incentives, but it is also not conducive to strengthening enterprise management and economic accounting and improving economic efficiency and competitiveness. Therefore, tax expenditure must be conducive to invigorating the enterprise economy and mobilizing the enthusiasm of enterprise production and operation, strengthening management and economic accounting, and fair competition among enterprises. At the same time, the direction and structure of tax expenditure must be based on ensuring the realization of industrial policies. The industries and products that should be supported at present are mainly agriculture, energy industry, transportation industry, raw material industry and export products. Therefore, the tax expenditure policy should focus on these aspects. There should be no tax expenditure on industries and products whose development is restricted or prohibited. Of course, tax expenditure should also take into account the regional economy. China is a vast country with great economic differences. In order to encourage all localities to foster strengths and avoid weaknesses, appropriate tax expenditures are also needed. To sum up, tax expenditure, whether in direction, structure or region, must be used on the premise of moderation. (2) The principle of coordinating tax expenditures is to give full play to the role of taxation as a means of economic adjustment. However, under the condition of market economy, in order to make the economy develop smoothly, there must be many adjustment means to affect the economy from different aspects, such as prices, loans, wages, financial subsidies and so on. Therefore, the implementation of tax expenditure should pay attention to the organic cooperation with various adjustment means and complement each other. (3) The purpose of inclined principle tax expenditure is to promote the sustained, stable and coordinated development of the national economy. Therefore, the implementation of tax expenditure must be based on the political and economic tasks of the country, otherwise, it will easily run counter to the direction of economic development, which will not only promote economic development, but will hinder the growth of the national economy. Economic activities encouraged by tax expenditures must be based on promoting economic development and be consistent with the political and economic tasks of the country. It is actually an inclination to realize tax preference through tax expenditure. It is an important principle to encourage the advanced and spur the backward. If we don't master this principle well, it will easily lead to "whipping fast cattle and protecting backwardness", which is not conducive to mobilizing the enthusiasm of all aspects of enterprises and prompting enterprises to change the backward situation through subjective efforts. (IV) Benefit Principle Moderate tax expenditure can promote economic development and cultivate tax sources, which is beneficial both macroscopically and microscopically. However, excessive tax expenditure not only damages the overall interests, but also can't effectively motivate taxpayers to tap their own potential from a micro perspective, thus increasing their dependence on tax expenditure. Tax expenditure may bring temporary benefits, but it loses long-term benefits. Direction of Tax Expenditure In recent years, both developed and developing countries have actively taken some tax-based measures to stimulate certain economic activities, such as investment plans at home and abroad, in which tax expenditure plays a very important role. Although there was no name of tax expenditure in China in the past, the fact of tax expenditure has existed for a long time. In various tax systems, clauses such as tax reduction and exemption and preferential tax rates are clearly stated. Although China's tax expenditures such as tax reduction and exemption are proposed for the purpose of encouragement and care, with the deepening of China's economic system reform and the development of the national economy, finance is changing from a simple supply type to a management type. Therefore, the direction of tax expenditure should not only be general encouragement and care, but should be devoted to the sustained, stable and coordinated development of the national economy. According to the specific situation of our country at this stage, the incentive direction of tax expenditure should be aimed at the following objectives: (1) Encourage investment according to the direction of national demand. Such as agriculture, forestry, energy, transportation and other countries urgently need to develop projects, oil, steel and other important raw materials industrial projects, housing construction. (2) Incentives for key industries. (3) Regional incentives. (4) Encourage the introduction of foreign advanced technology and equipment. (5) Encourage export industries. (6) Encourage foreign investment. The above information is reproduced in the tax tutorial-tax expenditure