Arguments against Tax Competition
February 12, 2025
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Many students often find tax policy confusing. This is probably because it uses complex terms. The tax base is one such term that is often used in tax literature. The meaning of this term is often not completely understood by tax students. This creates further confusion.
In this article, we will clarify the meaning of the term tax base, as well as the application of this term in the tax policy.
Tax base can be defined as the total amount of assets or revenue on which the government can levy a tax. This is best understood with the help of an example. For instance, in the case of income tax, the tax base is all the income that is earned by the people of the state. Similarly, in the case of property taxes, the tax base is the total value of the property, which changes hands in a given period of time.
Hence, the tax base can be thought of as the number to which a percentage rate is applied to reach the dollar amount of the tax that needs to be paid. For instance, if a 30% tax has to be applied to $100000 income, then the $100000 is the tax base.
Now, this seems to be quite simple and straightforward. However, it needs to be understood that there are many different types of taxes in the world that have many different types of tax bases. This is what makes the behavior of these taxes different. In this article, we will study some of the common types of tax bases.
The tax base is often found to be inversely proportional to the tax rate. When the tax rate is decreased, more corporations start moving their economic activity to the country, and the total tax collected is increased. This inverse relationship continues till a certain point beyond which it ceases to exist. This relationship has been explained in detail in a concept called the Laffer Curve, which will be explained in a separate article in this module.
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