As the following figure shows the marginal rates of taxation stay the same however the average tax rate increases with rising income due to the more and more negligible effect of the tax exemption.Įspecially with respect to income tax the flat rate tax system is often contrasted with a progressive tax rate system. With respect to income taxation, it usually comprises a tax exemption for income below a certain level. A flat rate tax is a system with a constant tax rate this means that each tax payer has to deduct the same proportional amount of his income and earnings subject to taxation to the fiscal office. 1 Furthermore in other European countries like Germany and Switzerland there are controversial discussions about introducing a flat rate tax system. Some European countries, especially in Eastern Europe, for example the Czech Republic and Slovakia, recently introduced a ‘flat tax’ system.
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