Arguments against Tax Competition
February 12, 2025
Bankruptcy is a common phenomenon in the business world. There have been many cases wherein the stalwarts of yesterday, the companies which were running multi-billion dollar profits, have later filed for insolvency. For the benefit of the readers, let us define bankruptcy. Bankruptcy is the stage at which companies find it financially unviable to function. […]
The average person believes that they are legally allowed to make any investment that a rich person can. However, this is not true in America, and this is certainly not true in many parts of the developed world. The reality is that the average American population is only legally allowed to purchase securities which are […]
In many cases, IPOs are thought of as being underpriced. This means that as soon as the IPO is listed in the market, investor demand appears, and as a result, the price of the newly listed shares goes up. This is the situation that the issuing company, as well as the investment banker, wants to […]
We already know that primary financial markets are used by firms to raise funds from investors. This is done by issuing shares via an initial public offer, rights issue, or even using private placements. In each of these cases, the firm selling shares has to arrive at a market price at which they are willing […]
The global payments processing market is dominated by only two major players viz. MasterCard and Visa. Many experts find this perplexing. How is it possible that in the era of global competition, there is a market niche which is completely dominated by two players only? What makes it even more interesting is the fact that […]
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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