Tax expenditure are concessions and exemptions provided to the tax payers by the government. These concessions are aimed to promote certain type of activities like R&D, public welfare etc. Hence, though these are exemptions from paying taxes they are indirectly some sort of expenditure (to the tune of the tax concessions made to the tax payer) made by the government to realize the given objective. Hence the tax concessions and deductions are termed as tax expenditure. (These expenditure are described as tax preferences as well).
Tax expenditures are also termed as revenue foregone.
The tax policy in India gives rise to a number of tax preferences and they are indirect subsidy to preferred tax payers. Such implicit subsidy payments are also referred to as ‘tax expenditures’. The logic for such a name is because of the argument that these implicit payments should appear as expenditure items in the Budget.
