foreword by

jeffrey owens, director, oecd centre for tax policy and administration

tax expenditures may be defined as public expenditures delivered through the tax system, using special tax concessions falling outside a benchmark（norm）tax system. special tax concessions can take the form of a reduced tax rate, a tax allowance or deduction from a tax base, a tax credit deducted against tax payable, tax deferral or exemption, or other form of offset to tax liability.a tax incentive to stimulate investment is a classic example.in pract, defining a benchmark‘norm'tax system is controversial, and one observes considerable differences across countries in chosen benchmark definitions and concepts.the central output of tax expenditure accounting is the measurement of amounts of tax revenue foregone by tax expenditures-that is, revenues foregone caused by deviations of the actual tax system from the norm or benchmark tax system.various estimation methods are observed.

in general, the motivation for regularly measuring and reporting tax expenditures in budget documents is to strengthen public governance through increased transparency and improved management of public funds. tax expenditure reporting enables measurement of total public expenditure in various areas, delivered through direct cash outlays and through the tax system.it curbs scope for rent-seeking, is required for cost-benefit assessments of tax expenditure programmes, and guides policy adjustment and fundamental tax reform.six areas where tax expenditure reporting assists policy- may be cited：

management of overall fiscal position-by estimating revenue foregone due to tax expenditures, the government is better able to measure its fiscal position（deficit/surplus）in the presence and absence of a given tax expenditure, thereby contributing to fiscal management. improved fiscal control also contributes to a more stable and certain fiscal framework, encouraging to investment.

management of budget allocations-government resources are allocated in part to various policy areas（e. g.income support, industrial support, support for r＆d, environmental protection）through both direct spending and tax expenditures.total allocations（‘envelopes'）to targeted policy areas can be addressed where government has data on direct spending as well as estimates of tax expenditures.

cost-benefit assessment of incentives-assessment of the net social benefit of taxrelief targeted at a given activity and/or taxpayer group requires an assessment of tax revenues foregone by the measure. tax expenditure measurement addresses the‘cost'element of such assessments.an assessment of the amount of revenue foregone and take-up under a given program is also relevant to an assessment of the positive impacts or benefits of the expenditure.

distributional assessment of tax relief-assessment of the allocation of tax relief across different taxpayer groups enables the government to consider the income distribution impact of tax expenditure provisions（and the impact of adjusting or removing them）.

inform policy--assessment of the overall budgetary impact, resource-allocation and distribution effects, as well as revenue costs relative to benefits of tax expenditures, helps inform policy-（e. g.decisions over whether to continue, abolish, or amend a tax expenditure）.

reduced scope for corruption-transparent assessment of tax expenditures reduces scope for corruption of tax administrators. this helps encourage taxpayer compliance and provides support to good governance throughout the operations of government.indeed, corruption on the part of tax＆customs officials is often cited as a main contributing factor to poor public governance.reduced corruption and administrative discretion in deciding tax liabilities is also encouraging to fdi, for a number of reasons（e.g.by providing greater certainty over tax treatment），and thus reduced investor uncertainty over tax liabilities including the tax treatment of other（rival）firms.

looking across countries, there is a continuing need to document tax expenditures in a more systematic and internationally comparable manner to facilitate budget discipline and to foster tax reforms that seek to attain the advantages of broad tax bases and low statutory tax rates. emphasis on tax expenditure reporting in the near-to medium-term is likely to entail the adoption by government of micro-simulation models needed to estimate revenue foregone through tax concessions（with reference to practs pursued for example by certain oecd countries）.

creating tax expenditure models and datasets to enable tax expenditure measurement requires a significant resource commitment on the part of government. while the outlays are dwarfed by returns on investment, the costs are not negligible, and many countries are not as able as others to fund such work.countries with tax expenditure measurement frameworks provide a great benefit to others where they assist, by sharing expertise.for over 15 years, the centre for tax policy and administration of the oecd has contributed to this exchange of knowledge and experience by organizing each year a‘micro-simulation tax analysis'workshop, offering quantitative models used to estimate the revenue impact of corporate income tax, personal income tax and value added tax reforms, including adjustments to tax expenditures.

even more critical to the exercise is the adoption by countries of rules and procedures to ensure that tax expenditure reporting is embraced, and that regular reporting is undertaken to guide tax policy development. this new book by dr.steven xuhong lee is a landmark publication, for a number of reasons.firstly, the authoranalyzes a number of fundamental legal issues, including the nature of tax expenditure reporting and issues involved in incorporating such reporting into law.secondly, the author reports detailed empirical and cross-country analyses of differences in the legal basis of tax expenditure reporting in western oecd countries.thirdly, groundbreaking legal research is presented on the role and contribution of tax expenditure reporting, and inter-relationships with human rights and s, efficiency, just and rule of law.lastly, the author proposes to construct a legal system to support tax expenditure reporting in china, involving the modification of the budget law of china, and the formulation of regulations on tax expenditure reporting.detailed suggestions for practical implementation are also provided.there is no doubt that this analysis will be invaluable as china pursues reform of its tax system.

at present, there are very few research publications addressing these important issues required to advance tax expenditure measurement and reporting. dr.lee's research proposes a model of tax expenditure legislation on the basis of a careful analysis of legal practs observed in tax expenditure reporting in other countries.his model provides a useful reference for improving tax expenditure systems in other countries, and in particular, for developing countries working towards establishing a tax expenditure system to support tax policy assessment and reform.

dr. steven xuhong lee has held a number of positions in the tax policy department of the ministry of finance of china.since 2005，as a representative of ministry of finance of china, he has participated as an observer in meetings of working party 1 of the oecd committee on fiscal affairs, and the related global forum.in 2009，the tax policy department of the ministry of finance of china hosted in beijing the third international tax dialogue global conference, led by the oecd together with other international organizations.dr.lee was the executive secretary of china's planning committee, and helped ensure a succesul outcome of the meeting.

feb.，2012