Tax Mitigation:
- Tax mitigation is a legitimate method by which an individual reduces its Tax burden.
- Taxpayer takes advantage of a fiscal incentive afforded to him by the tax legislation.
- Tax mitigation is an acceptable practice and is facilitated by Government.
- An example of tax mitigation is the setting up of a business undertaking in Special Economic Zone (SEZ) to avail various tax incentives.
Tax Mitigation vs Tax Avoidance:
- Tax avoidance involve specific loopholes in the law, such as tax havens while Tax Mitigation involves all the legitimate methods.
- Tax Avoidance is negative in the sense that it is associated to exploit the tax system for personal gain while Tax mitigation is allowed by the Government itself for a specific reason.
Tax Expenditure/Expenditure forgone:
- Tax expenditure are concessions and exemptions provided to the tax payers by the government so as to promote certain type of activities like R&D, businesses, public welfare etc.
- These tax exemptions can also be to the corporate to help out them or to promote particular areas and industries.
- Tax Expenditure shows the extent of indirect subsidy enjoyed by the tax payers in the country.
Fiscal Drag:
- When income of an individual increases, then the individual enters into higher tax bracket resulting into more tax payments to the government.
- This situation results in less money with individual to spend and hence less liquidity in the economy leading to slow down.
During the economic boom
:
Incomes of an individual increases
Tax Payment of individual increases
More money going in the form of taxes to the government
Less Money left with Taxpayer
Less money left with the Tax Payer to spend in the economy
Slow down in the economy.
