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It is common for income tax systems around the world to contain a broad range of exemptions. From a policy perspective, there are many reasons why governments provide exemptions. The most obvious is to grant concessional treatment to certain ‘deserving’ entities. Tax exemptions may be total or partial and are usually provided because the relevant entities serve some social, community or philanthropic purpose that the government wishes to support. By providing particular entities with tax exemptions, the government delivers support to them indirectly (ie via tax expenditures) rather than directly (ie via grants or subsidies). Clearly, providing tax exemptions comes at a cost, since governments do not collect revenue from the benefiting entities. However, this needs to be balanced against the fact that many of these entities provide important services to the community, which governments might otherwise feel they would have to provide themselves. By supporting such entities under their tax systems, governments can relieve themselves (either wholly or partly) from having to directly provide certain services that may, in any case, be best delivered through the private sector.
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