When you pay tax, a part of your income has been deducted. That cash would have been used to meet other personal needs. Such as eating in a 5 star hotel, buying the latest clothing or investing in a mutual fund. The payment of such tax is what is referred to as a tax burden. In this article, let’s explain what you need to know about it.
Definition — What is Tax Burden?
This is the amount paid as tax by an individual or corporate body. According to the Institute of Chartered Accountants of Nigeria (ICAN) study pack on taxation, tax burden is the “amount of income, property or consumption tax leveled on an individual or business.”
Tax paid by citizens. The tax paid by every citizen whether individual or corporate is referred to as a burden of tax. This can be direct tax on income or property. It can as well be indirect tax from consumption of goods and services. The amount suffered by a citizen depends on the level of income and certain tax wavers.
Income Tax. This can be on income of individuals or that of a business. The amount of tax paid by an individual depends on the level of income. In Nigeria, an income less than 30,000 Naira is not subjected to tax. Therefore, such people do not suffer charges and enjoy all the disposable income. Companies are not expected to pay these charges if they make chargeable losses.
Property tax. It is charged on the properties of the citizen. This could be property, plant or equipment (PPE)or shares. If a PPE is sold at a gain, then such gain is taxable under capital gain act. This is also true of shares. Increase in share price results in capital gain and it is chargeable under the act.
Consumption tax. Including import duty, excise duty and vat. The burden here depends on the incidence of tax and the elasticity of the goods or services. If the business can shift the amount paid as tax to the individual, then the burden becomes that of the person buying the goods or receiving the service. However, if the business cannot shift the tax burden, then it suffers the tax amount itself.
Factors that affects who bears the Tax Burden
Income level. The income level is an important factor. The higher the income of the individual or corporate entity the higher the chargeable amount paid. Individuals receiving a salary of more than 30,000 Naira are charged tax from their income to arrive at their disposable income. Also, the higher a company’s income, the more tax it pays.
Jurisdiction. The citizen jurisdiction also affects the amount chargeable. A person living in the federal territory or a commercial city may pay more taxes, especially consumption type, than individuals in rural areas.
Also, some jurisdiction may not be too serious on tax payments. For example, people living in more developed areas of Lagos state like Lekki, Ajah, Ikeja and Victoria Island pay more taxes than people living in Badagry and other remote areas of the state.
Current tax rate. The current rate affects the amount paid by individuals to the government. If government fiscal policy in the current year or the following year is to increase tax rate, this will increase the tax burden and vice versa. In 2021, the fiscal policy of the Nigerian government was to exempt employees whose salary is 30,000 Naira and below not to pay taxes.
To wrap it up, the tax burden is the amount of tax paid by individuals and corporations. It is only after these charges have been deducted that the citizen can receive disposable income. That is the income he or she can spend. Other taxes citizens suffer from includes consumption and property. More to it, the factor that affects the burden includes income level, jurisdiction and current tax rate.