Currently the government is facing the problem of insufficiency of public resources. With the problem looms large, the Congress demonstrates a tighter control over the expenditures of government agency. Meanwhile, the tax expenditures, usually ignored by the Congress surveillance, have become the preference of the government for administrative purposes. However, whether the process of such deviations from the normal budget cycle is appropriate or not has become the focal point of discussion.
Tax expenditures are the revenue forgone behavior adopted by governments that aim for specific purpose. They take various forms, such as exclusion from income tax, special tax rates, tax credit and deduction, and the deferral of tax payments, to reach the subsidy effects similar to those of direct expenditures. Due to its deviations form its basic tax structure, for government, tax expenditures are losses in public revenue; for taxpayer, it is a reduction in tax burden.
In Taiwan, the main purpose of employing tax expenditures is to promote domestic investment, economic and industrial development. The major institutional arrangements for tax expenditures to stimulate industrial development are regulated in the "Statute for Upgrading Industries”. This study attempts to figure out whether the use of tax expenditures is appropriate or not by using the analytical tool of cost-benefit analysis to assess the Statute for Upgrading Industry.
Based on our analysis, the result has suggested that the tax expenditures of the Statute for Upgrading Industry, are not effective in most of the circumstances; only at the level of 5% discounting rate are effective. Therefore, this study indicates that the use of tax expenditures provisions is inadequate and should not become a standing policy option for the purpose of industrial promotion.