What are tax loopholes and what are their effects?

What will be an ideal response?

A tax loophole is a special provision in the tax code that reduces taxation below normal rates (perhaps to zero) if certain conditions are met. They can exist for several reasons: One is a perceived need for horizontal or vertical equity. A second is that a person, firm, or industry has engaged in effective rent seeking and has obtained a tax advantage. The effects of loopholes are to encourage particular patterns of behavior and/or to discourage other patterns of behavior. Many loopholes benefit the wealthy; this tends to erode the progressivity of a progressive income tax.