Effective tax rate

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krokodilizm

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Effective tax rate on dividends
1 - (1-corporate tax rate on divis) x (1-personal tax rate)
Consider this though
EBT = 125
Corp tax 20% =25
Net profits (100% dividend) =100
Personal tax 40% = 40
Net dividend =60
Effective tax rate= 60/125=48%
Now plug this into the formula
1-(1-0.2)*(1-0.4)=52%
Where is the fallacy?
 
Yepp. Common effective tax rate is 52 % cause there are 2 tax payers on same tax base.
Thus, step by step..
Corp. eff.rate (note that in that school example effective corp.rate is same as nominal which is not always case in real life).
Corp. eff. rate = tax exense/EBT = 0,2
Personal eff. rate = tax expense/tax base which is dividend before taxation in this case = 40/100 = 0,4.
This is called the cascade tax effect. The last tax payer carries greater tax burden as an avalanche impact.
 
krokodilizm wrote:Effective tax rate on dividends
1 - (1-corporate tax rate on divis) x (1-personal tax rate)
Consider this though
EBT = 125
Corp tax 20% =25
Net profits (100% dividend) =100
Personal tax 40% = 40
Net dividend =60
Effective tax rate= 60/125=48%
Now plug this into the formula
1-(1-0.2)*(1-0.4)=52%
Where is the fallacy?
Click to expand...
Right here:
Effective tax rate = 60/125 = 48%
 
LOL. Here’s a cool magic idea.
You switch off the lights in the room and ask kids “Where did the light go?” They wonder where and that’s when you open the fridge and say “Right here!”.
 
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