Question

What’s the effective tax rate and why do people reconcile it. Also what is statutory tax rate

Answer 1

Effective tax rate:

It is the average rate of tax where individual and companies pays tax on earned income.

For Individual Effective tax rate is Total tax paid divided by Today Income.

Where as for corporation it is Total tax paid divided by Earnings before tax (EBT).

It is true where tiered or progressive tax system occurs.

Under Progressive tax system difference income levels are taxed at different rates.

Effective tax rate is one type of ratio where investors use it as a profitability indicator for a company.

It will fluctuate someone's it changes drastically from year to year.

While reconciliation of high conventional measures of effective tax rate with Low revenue collected, we can say that the effective tax rate seems to be much lower than existing measures.

Statutory tax rate is the tax imposed by law(statute).

In some cases the statutory rate varies for Individual and companies in the amount of taxable income.

It is expressed in percentages.

Effective tax rate is always lower than statutory rate the reason behind this is most of the tax payers are perfectly legal to reduce your income so statutory tax rates are applied to lower number than what you actually earned. Hence the effective tax rate is always lower than the other.