Tax Burden

Tax Burden is also known as Tax Incidence and means the research of the effect of a specific tax on the economic welfare of the people. The Burden of Tax falls on that group of people that has to pay the tax at the end of the day.

Taxes are charged by the state and it is an enforced contribution that the individual or the legal entity has to pay. The various kinds of taxes that have to be paid are income tax, sales tax, property tax, fuel tax, and luxury tax among others. The law of the land states from whom taxes are to be collected but the person who finally pays the Tax Burden is usually decided by the market. It is the market place that decides the person who is going to pay the Burden Tax for the taxes gets embedded with the costs of production.

The Burden of Tax depends on the quantity of product supplied and the demand for it and this is called the elasticities of demand and supply. Depending on it the Tax Burden can be absorbed either by the buyer which it does in the shape of higher prices post- tax or it may be absorbed by the seller in the shape of lower prices pre-tax. In case the supply elasticity is low then more of the Tax Burden is taken by the supplier. On the other hand if demand elasticity is low then more of the Burden Tax is taken by the customer.

Tax Burden in the case the seller is a firm that is competitive flows back to the production factors and this includes the capital investors who have to bear in the shape of loss of money to shareholders, entrepreneurs who have to bear in the shape of less salary of superintendence, landowners who have to bear in the shape of low rents, and workers who have to bear in the shape of lower salary.

The results of Tax Burden are:

The employer passes on the Burden of Tax on the employee in the shape of lower salary If the employer has to provide his employee with health care facilities according to government regulations then too the Tax Burden will fall on the employee in the shape of lower salary

Tax Burden puts on added pressure on the person that has to pay for it for it amounts in him paying more money as tax. And so the government must keep the rate of tax at such a level that everyone is able to bear the Burden of Tax.

Last Updated on 14^th June 2011

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