The tax base is the total amount of income, goods, goods, consumption, transactions or other economic activities subject to taxation by a tax authority. A narrow tax base is neither neutral nor inefficient. A broad tax base reduces tax administration costs and generates more revenue at lower rates. The tax base is an important source of reliable information for measuring the total income that a country`s government derives from taxation. It is a reliable accounting source to compile statistics in this regard. It becomes imperative that the government correctly determine the tax base for effective taxation, thereby ensuring that people are not overtaxed or undertaxed. Research costs are not capitalized in most accounting standards. Under tax standards, however, they usually are. This means that the book value is 0, while the tax base is >0. In other words, the carrying amount < the tax base, and there is a deductible difference that must be recognised as a deferred tax asset. The tax liability results from multiplying the tax base by the tax rate. It would therefore be the tax payable divided by the tax rate. A tax base is defined as the total value of assets, real estate or income in a particular jurisdiction or jurisdiction.

Take personal or business income, for example. In this case, the taxable amount is the minimum amount of annual income that can be taxed. This is taxable income. Income tax is levied on both personal income and net corporate income. When a government indirectly taxes various other items, such as value added tax (VAT) refers to the fees charged when the utility or value of a product throughout its supply chain, i.e. from its manufacture to its final selling point. This is an indirect tax levied on the consumption of products. Read more, central tariff, excise duty, imports, tariffs, etc., its base would now expand. Broadening the base would be a source of additional revenue for the government. The government can now use it for productive purposes such as the development of infrastructure projects, social and social spending, etc.

Such activities would promote the development of the nation. The tax base is often inversely proportional to the tax rate. When the tax rate is lowered, more companies begin to move their economic activities around the country, and the overall tax increases. This inverse relationship lasts until a certain point where it ceases to exist. This relationship was explained in detail in a concept called the Laffer curve, which is explained in a separate article in this module. Below are some examples of how tax bases are calculated for different assets. Taxes can be based on any type of asset or source of income. For example, to calculate the tax base for a sales tax, you can consider the total purchasing power of adults in the municipality as the tax base. Gas tax revenue sources could consider total gas station revenues as the tax base. Broadening tax bases reduces tax administration costs and generates more revenue at lower tax rates. Narrow tax bases caused by various deductions and exemptions are considered non-neutral and inefficient because they do not generate much revenue.

The government usually decides in the budget session on the tax rates and the different sources of revenue it wants to tax, or rather not to tax. It becomes important to stay tuned to understand what falls under the government`s total taxable income basket to determine the base. The tax base for deferred income depends entirely on the jurisdiction and its tax authorities. Some tax authorities tax income on a cash basis, which means they tax income as it enters the company`s bank account. In this case, the carrying amount < the tax base, resulting in a deferred tax asset (but does not affect the income statement since it is deferred income). The federal income tax base includes all types of income, such as wages, interest and dividends, as well as capital gains. However, the federal tax base is limited by various deductions and credits. A more neutral tax base will, with a few exceptions, impose a low tax rate on a broad tax base.

The more exemptions there are from the tax base, the more the tax burden is transferred to what remains of the tax base.