Home >Money >Personal-finance >DYK | What is Statement of Revenue Forgone

The government levies taxes to raise revenue to fund its expenditure. To give relief to certain sections, or to promote certain activities, the government also provides tax breaks and incentives. Such incentives have an effect on revenue mobilization. Therefore, along with the other budget documents, the government of India also presents the Statement of Revenue Forgone, which shows the revenue impact of tax incentives. This was first presented with the budget 2006-07 as an annexure to the receipts budget. In subsequent years, the government started presenting it as a separate document with the budget.

The revenue forgone is also referred to as tax expenditure or indirect subsidy to taxpayers. “The tax policy provides specific tax incentives which give rise to tax preferences. Such preferences have a definite revenue impact and can also be viewed as an indirect subsidy to preferred taxpayers, also referred to as ‘tax expenditures’," noted the statement presented with Union Budget 2015-16. This year, the document has been renamed as Statement of Revenue Impact of Tax Incentives Under the Central Tax System.

What’s in it?

The statement shows the revenue impact of various incentives given to different classes of taxpayers. For example, the revenue impact of the tax incentives given to individual taxpayers was estimated to be 35,293.6 crore in 2014-15 compared with 30,771.8 crore in 2013-14. The revenue impact of deductions on investments and payments under section 80C was at 29,237.1 crore in 2014-15 compared with 25,491.3 crore in the previous year. Differently put, other things being equal, if deductions were not allowed to individual taxpayers, the government would have collected extra revenue of at least 30,000 crore in 2014-15. The revenue impact of tax incentives given to corporate taxpayers (a sample size 564,787 companies) in 2014-15 is estimated to be 62,398.6 crore compared with 57,793 crore in the previous year.

However, revenue impact should not been seen as tax wavier. “Though the revenue impact has been quantified in terms of tax expenditure, it does not imply that this quantum of revenue has been waived by the government. Rather, these could be seen as targeted expenditure for the promotion of certain sectors," noted the document. In fact, in some cases, tax incentives may be necessary to start or stimulate economic activity in certain areas.

What does it mean?

There has been a fair amount of discussion in the past on the revenue foregone statement. While some people argue that the government is subsidizing corporations at the cost of the poor in the country, others are of the opinion that such incentives are necessary to increase economic activity, which generates employment and income. As announced in budget 2015-16, the government is moving in the direction of reducing exemptions for companies along with reduction in the rate of corporate tax. This is likely to bring more efficiency in corporate taxation.

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