Taxation is a universal form of government financing, and with the evolution of income tax codes has come the development of tax relief initiatives. A tax relief program is a system of exemptions and deductions that is applied against income resulting in a decrease in tax liability. These are generally legislative measures, and can be designed for individuals, businesses, or segments of a population.
One reason a government may decide to implement a tax relief program is to encourage business development, thereby increasing employment and ultimately increasing revenues. These tax incentives may be offered at either the national or local level. Some popular approaches have been to lower the corporate income tax rate for a specified period, or to increase deductions allowed for the purchase of new equipment or expansion of existing businesses. Sometimes, business incentives may be applied to any business of any size, while other programs may only be available for smaller businesses. Another approach used has been to increase the amount or rate of depreciation allowed on business equipment, or to temporarily lift tariffs on certain manufacturing equipment and supplies.
As the population of many countries has aged, and the continued solvency of Social Security or old age pension funds is a concern, a number of jurisdictions have created a tax relief program that encourages individual savings for retirement. In many cases taxpayers are given deductions against their taxable income for investing a portion of their income into qualified retirement plans. Other programs allow a taxpayer to use after-tax money to invest in a retirement account with the promise that all future earnings in that account will be tax exempt. Businesses may also be allowed deductions for their contributions into private pension plans for their employees.
In other cases, a tax relief program may be designed to reward certain behavior or to stimulate a specific segment of the society. Many countries offer tax credits for education or job training, and tax exempt savings plans have been developed to assist parents in saving for the college education of their children. Other tax credits have been created to encourage home ownership, expand the availability of low income rental property, or increase business development in economically disadvantaged areas. In some regions, employers are offered additional tax credits for employing disabled individuals who might have difficulty finding regular work.
When a natural disaster strikes in a particular area, the government may respond with a tax relief program specifically targeted for individuals and businesses that have been harmed. Such a program may involve temporary tax relief for the victims as well as extra credits or deductions for those who offer assistance. For example, the normal penalties for early withdrawal from retirement accounts may be waived, or extra exemptions may be allowed for the affected parties. Those offering assistance may be given extra charitable deductions or exemptions as a way to encourage the private sector to take on more of the responsibility of restoring the damaged area.
Another segment of the population often targeted by a tax relief program is the elderly. This may take the form of an additional standard deduction or personal exemption, or the ability to shelter a portion of a pension plan from taxation. Some local jurisdictions may offer reduced property taxes for elderly who have lived in an area for a minimum number of years. Military personnel may also be beneficiaries of programs which exempt income from taxation while serving in a combat zone, or allow certain housing allowances or education benefits to be excluded from taxable income. In some areas, lower income individuals may actually receive refundable tax credits in excess of their withholding.
Some tax authorities may also be empowered to develop an individual tax relief program for a person who is significantly in arrears on his taxes. In some cases, the program may include a waiver of interest, penalties, or an actual reduction in the tax monies due. Another approach is to initiate long-term payment plans which allow the taxpayer to gradually pay off the debt without underpaying each subsequent year because he is pouring all of his additional resources into past due payments.