Tax expenditures in personal income tax and evaluation of tax expenditures in the Turkish personal income tax

The tax expenditures which have been one of spending methods of public revenue, arise from privilege provisions in tax acts. These provisions exist almost tax system and aim to encourage some economic activities(i.e. exporting, investment, production) or to provide relief some group's tax burden. The high income owners obtain more benefit from tax expenditures which encourage investment and saving. Thus they create negative impact on income distribution. However, if investment can be augmented by these expenditures, economic development can be realized and per capita income can be increased. Generally, in order to distinguish preferencial provisions in income tax acts which are identified as "tax expenditures", from other provisions, it is taken into consideration a benchmark that is "generally accepted structure of income tax". If the deviations from this benchmark generate also revenue loss, these are described as tax expenditures. The benchmark concerned with definition of taxable income, tax schedule, deductibility of compulsory payments, accounting conventions and provisions to facilitate administration. Tax expenditures' components are exemptions, allowances, credits, rate reliefs and tax deferrals. Tax expenditures' cost is not only public revenue loss, also tax expenditures may cause distortion at tax structure. This cost is hidden. Because accounting and estimation of theirs quantity aren't shown in any official documents. Althought public resourses are used, amonts of subsidy can't be known. So evaluation of the provisions which are whether or not sufficient and appropriate, can't be realized. At the same time, public expenditures which are created by only public spending system, have taken into cosideration for any public services. Therefore, total spending from public resourses in order to realize any public services can't be determined. Because of tax expenditures' hidden cost, the politicans tend to prefer tax expenditures to direct subsidy. As a result, public resourses may be wasted.207 The tax expenditure approach emphasizes that tax preferences are kinds of public expenditures and so, theirs amounts must be shown at public budget. In most of developed countries(especially USA), amounts of tax expenditures are reported and this report is presented to legislation. Also, tax expenditures' estimates are participated to next year public budget project in USA. The reporting or budgeting of tax expenditures are removed theirs hidden cost, so they can be discussed. The tax expenditures in Turkish income tax can be examined in the following: the most of exemptions which constitute tax expenditures in Turkish personal income tax, are subjected to stoppage. Therefore they aren't entirely exempted from income tax. Tax rate relief is applied with stoppage at sources, namely withholding tax. If withholding tax is final tax, tax burden on personal income may be heavier than withholding rate. If net income is taken into consideration, the paid tax on gross income may be higher. As a tax deferral, there is a provision to encourage research and development activities. At the same time, some rules of 4369 Numbered Act allow tax deferrals. The stamp tax and withholding tax on employee's income can be paid to tax office with two years delay by employers. So employers can use it as a credit without interest. This provision will be applied for employed person among certain dates. This provision aims to increase employment. Another tax deferral is related to sale of goods which are subjected to amortization. The profit, which arises from sale, isn't added to tax base and is held in another account. This amount must be used to buy new goods. If it is spent in other ways, the amount must be added to tax base. The revenue losses, which are caused by tax expenditures in Turkish personal income tax, aren't appeared as an important quantity. Because a little revenue is gained by withholding tax on exempted tax subjects and income tax payers rarely apply for tax deferrals. The only one provision, which creates positive impact on revenue losses, is belong to stocks and bonds. But today, most of countries try to decrease tax burden on stocks and bonds. So this is provision that creates more revenue losses than others.