What Are Tax Expenditures?

Tax expenditure refers to a special fiscal formed by the state in order to achieve specific policy goals, by formulating and implementing special tax legal provisions, giving specific taxpayers or tax items a variety of preferential tax treatment to reduce the taxpayer's tax burden. expenditure. ^[1]

Tax expenditure

Specifically, it can be defined as: the provision of specific types of activities or

According to the role of tax expenditure, it can be divided into:

Tax exemption

Tax exemption means that certain income items or sources of income of a taxpayer are not taxable for a certain period of time. Or exclude some of its activities from taxation, etc., to exempt its tax burden.

Common tax exemptions: One is exemption from customs duties and excise taxes; the other is exemption from income taxes.

Tax deduction

Tax deduction is to allow the enterprise to deduct some special special expenses from the taxable income at a certain rate or all to reduce its tax burden. Under the cumulative tax system, the higher the taxpayer's income, the greater the actual value of this deduction.

Tax credit

Tax credits refer to taxpayers deducting their taxable amount from certain expenditures that meet the incentive requirements to reduce their tax burden.

In the West, there are various forms of tax credits. There are two main forms: investment credits and foreign tax credits.

Investment credits, also known as investment allowances, refer to the government's requirement that for investors with depreciable assets, they can deduct the tax equivalent to a certain rate of new investment equipment from the company's income tax payable in the current year, To promote capital formation and enhance the potential for economic growth. In general, investment credits are short-term tax measures that encourage investment to stimulate economic recovery.

Foreign tax credits allow taxpayers to deduct their taxes paid abroad when they collectively calculate the income tax of foreign income in the country of residence.

The difference between the two: the investment credit is to stimulate investment and promote national economic growth and development, and is achieved by causing the taxpayer's tax burden to be unfair; while the foreign tax credit is designed to avoid international double taxation, making the taxpayer's The tax burden is fair.

4. Preferential tax rate

The preferential tax rate refers to a lower than normal tax rate for qualified enterprises. Its scope of application can be expanded and contracted according to actual needs. Generally speaking, the long-term preferential tax rate is more encouraging than the limited-term preferential tax rate, especially for those enterprises that require huge investment and have late profits, they can often get greater benefits from it.

5. Deferred tax payment

Deferred tax payment is also called "deferred tax payment", which means that taxpayers are allowed to defer payment or pay instalments of their eligible taxes. This method has a wide scope of application, it is generally applicable to various taxes, and is usually applied to taxes with a large amount of tax.

6. Breakeven

Profit and loss offset refers to allowing an enterprise to offset the surplus of the following years with the losses of a certain year to reduce its tax payable in the following years; or to offset the surplus of the previous years and apply for a refund of part of the taxes paid in the previous years. In general, the method of offsetting profits and losses is usually only applicable to income taxes.

7.Accelerated depreciation

Accelerated depreciation refers to the depreciation that is relatively large at the beginning of the useful life of fixed assets. With this method of depreciation, depreciation fees and tax deductions can be obtained earlier in the useful life of the fixed assets.

8. Tax refund

Tax refund refers to the refund of taxes paid by the taxpayer by the state in accordance with regulations. The tax refund formed as a form of tax expenditure refers to preferential tax refunds, which are tax refunds given by the state to encourage taxpayers to engage in or expand certain economic activities. There are two forms: export tax rebate and reinvestment tax rebate.

Export tax rebates are tax refunds given to taxpayers for the purpose of encouraging exports: First, refund of import taxes, but domestic tax, consumption tax, value added tax, etc.

Reinvestment tax rebate means that to encourage investors to reinvest the profits they have received, the taxpayer's reinvested part of the tax has been refunded.

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