The tax burden is the loss of part of the net benefit for society in connection with the fall in the level of industrial production and, accordingly, the consumption of goods below the optimal point due to the introduction of new or higher rates of existing taxes.
The concept of “tax burden” simultaneously arose with the introduction of taxes. In the 18th century, Adam Smith conducted a study of the economic relationship between the flow of funds to the state budget and the level of tax burden. As a result, an axiom is obtained, which states that the state will benefit from lowering the tax burden, as the released funds appear, from the investment of which you can get additional profit and, accordingly, additional tax.
Scientists have been trying to quantify this indicator for a long time. The German economist F. Justi succeeded for the first time, who gave a definition of this term at the macro level and is represented by the ratio between the state budget and the national income of the same state.
The tax burden is of great importance for the economy and consists in the following:
- This indicator is used when comparing with the corresponding indicator of other countries, the results of which make a decision on the implementation of certain reforms in taxation.
- The tax burden is actively used by the state in developing appropriate policies. When introducing new taxes, changing their rates, making changes to tax benefits, the state constantly monitors the results of the changes introduced, in the event of a negative impact on the economy, the government should respond accordingly.
- This indicator can be used as an indicator of the behavior of business entities. The ability of an enterprise to expand its production or to invest depends on its size.
- At the national level, the tax burden is used for social policy of the state. It is guided by its importance that the state can evenly distribute it among various social groups.
When calculating the tax burden, the business entity, in addition to the amount of taxes paid, takes into account those costs that affect the receipt of these taxes. They include:
- the cost of paying salaries to staff of the organization;
- interest payments on borrowed funds;
- production costs;
- costs of property insurance, etc.
Since the tax burden affects absolutely all economic processes in the state, it is monitored at the micro and macro levels.
At the micro level, this indicator is calculated for each specific taxpayer (this can be either a business entity - an enterprise, or an ordinary citizen). For an enterprise, the tax burden can be calculated in several ways. One of them is the ratio of the amount of taxes paid to the full amount of sales. The disadvantage of this algorithm is the failure to take costs into account. The second formula, which uses net profit instead of sales , is clearer and takes into account all the factors that affect simple income.
When determining the tax burden of an ordinary citizen, the ratio of income tax (PIT) on his total income is used.
At the macro level, this indicator is calculated using the ratio of all taxes received to GDP.
Summing up the above, we can draw the following conclusion: excess tax burden - loss of public benefit caused by the implementation of tax policy, which lead to a decrease in many economic indicators in the state.