Tax expenditures can be defined as the loss of government tax revenues, resulting from specific norms in the tax code that are designed to stimulate taxpayers or types of economic activity. These norms might include exemptions, allowances, credits, rate relief for various types of taxpayers or transactions, tax deferral, etc.
Tax expenditures, being an effective way of stimulating economic agents, are a part of any country's fiscal policy, but their impact is usually less transparent compared to direct expenditures and is often left out of systemic analysis, which is a noteworthy issue concerning comprehensive analysis of fiscal policy. Due to the importance of tax expenditures, better practice of public finance management requires high quality transparency in this regard with respect to the budget documentation. For example, the International Monetary Fund (IMF) recommends that the budget or its supplementary fiscal documentation contains information about the central government tax expenditures, including notice about the final goal, duration and targeted beneficiaries (IMF, 2007).
As for the tax expenditure estimation practice in Georgia, as per IMF evaluation, Georgia does not publish regular estimates of the revenue loss from tax expenditures (IMF, Georgia: Fiscal Transparency Evaluation, 2017). The evaluation notes that, despite the fact that estimates of individual tax expenditures may be released publicly while presenting tax laws to the parliament, budget documents do not contain systemic reporting about existing and future tax expenditures. Therefore, the IMF recommends that the budget documentation should incorporate estimates of tax expenditures, including individual costs for major measures as well as main beneficiaries. Moreover, it is possible to constrain tax expenditures, e.g. by budgetary limits.
With respect to tax expenditure estimation, it should be noted that the Parliamentary Budget Office (PBO) published a research paper about the VAT gap in 2018, which encompassed estimating revenue loss due to tax norms concerning VAT. For detailed information,see the PBO research publication.
For more details see the complete document (available in Georgian)