Foreword by
Jeffrey Owens, Director, OECD Centre for Tax Policy and Administration
Tax expenditures may be defined as public expenditures delivered through the tax system, using special tax concessions falling outside a benchmark（norm）tax system. Special tax concessions can take the form of a reduced tax rate, a tax allowance or deduction from a tax base, a tax credit deducted against tax payable, tax deferral or exemption, or other form of offset to tax liability.A tax incentive to stimulate investment is a classic example.In practice, defining a benchmark‘norm'tax system is controversial, and one observes considerable differences across countries in chosen benchmark definitions and concepts.The central output of tax expenditure accounting is the measurement of amounts of tax revenue foregone by tax expenditures-that is, revenues foregone caused by deviations of the actual tax system from the norm or benchmark tax system.Various estimation methods are observed.
In general, the motivation for regularly measuring and reporting tax expenditures in budget documents is to strengthen public governance through increased transparency and improved management of public funds. Tax expenditure reporting enables measurement of total public expenditure in various areas, delivered through direct cash outlays and through the tax system.It curbs scope for rent-seeking, is required for cost-benefit assessments of tax expenditure programmes, and guides policy adjustment and fundamental tax reform.Six areas where tax expenditure reporting assists policy-making may be cited：