What do you understand by Tax expenditure? Comment on its relevance? ( Economy)

Tax expenditure is the revenue foregone as a result of exemptions and concessions. Tax expenditure was introduced for the first time in 2006-07 union budget.  Tax expenditure is justified on following grounds:

  • Act as an incentive for priority sector like infrastructure.
  • It promotes balance regional growth
  • It neutralise the disadvantage on account of location
  • It provides opportunity to new industries to grow and flourish.

 

But tax expenditure has its own demerits. As it leads to: