Tax burden is also known as Tax incidence. Economics view it as the effect of a particular tax on the distribution of economic welfare. In simple terms, tax burden is the amount of tax paid by a person, company, or country over a specified period in relation to the total income generated in that period. Tax burden is usually assumed to fall upon whoever will ultimately bear the tax burden. In other words, payment (burden) of tax can be shifted from one person to another. For example, the government may decide to increase Valued Added Tax(VAT) rate on cigarettes sold; the producers can effectively increase the price of the cigarettes to accommodate the increase of tax. In such instance, the consumers of cigarettes would ultimately bear the burden of paying the increase in taxation.
WHO PAYS WHAT AND WHY?
Several forms of tax exist and each form as a targeted sector of persons. Some of the taxes and the purposes for which persons bear the burden of paying would be succinctly examined below.
The income taxes are usually levied on personal and businesses generated revenue. Notably, income taxes are mostly always progressive (high income attract higher tax rates and lower income means lower taxrates). The following are forms of income tax;
Property tax is sometimes known as Advalorem tax, it is imposed on the value of real estate or other personal property. Property taxes are usually imposed by the local government and charged on a recurring basis.
It’s often used by the government to raise revenue. Purchases made at the retail level are assessed at a percentage of the sales price of a particular item. Some believe the sales taxes are the most equitable form of taxation, since they are essentially voluntary and they extract more money from those who consume more. Others believe they are the most regressive form of taxation, since poorer people end up paying a larger portion of their income in sales tax than wealthier individuals do. The following are forms of sales tax.
Ultimately, the person that bears the burden of tax and those on whomit’s initially imposed differs. Thus, an individual on whom the tax is levied does not have to bear the true size of the tax.