A flat tax (short for flat rate tax) taxes all household income, and possibly corporate profits as well, at the same marginal rate. A flat tax usually refers to the taxation of incomes but can be applied to consumption.
Flat taxes are uncommon in advanced economies, whose nationwide taxes typically include a graduated tax on household incomes and corporate profits, such that the marginal tax rate rises as the income or profit of the taxed entity rises. Flat taxes, implemented as well as proposed, usually exempt from taxation household income below a statutorily determined level that is a function of the type and size of the household. As a result, such a flat marginal rate is consistent with a progressive average tax rate. Otherwise, all income or consumption is taxed at the same marginal rate.
The flat tax has been adopted in Estonia, Lithuania, Latvia, Russia, Serbia, Ukraine, Slovakia, Georgia, Romania, Macedonia, and the Czech Republic (only for companies).[1] Proponents believe the simplicity and efficiency of the flat tax is a key reason behind Eastern Europe's dramatic growth. Others believe it is more readily explained by a low starting base and large inward investment. Other countries employing flat taxes include Iceland, Kyrgyzstan, Mongolia, Hong Kong, Saudi Arabia, The United Arab Emirates, Bahrain, Somalia, Nigeria, Rwanda, Uruguay, Guyana, The Bahamas and Tonga.
Flat taxes are uncommon in advanced economies, whose nationwide taxes typically include a graduated tax on household incomes and corporate profits, such that the marginal tax rate rises as the income or profit of the taxed entity rises. Flat taxes, implemented as well as proposed, usually exempt from taxation household income below a statutorily determined level that is a function of the type and size of the household. As a result, such a flat marginal rate is consistent with a progressive average tax rate. Otherwise, all income or consumption is taxed at the same marginal rate.
The flat tax has been adopted in Estonia, Lithuania, Latvia, Russia, Serbia, Ukraine, Slovakia, Georgia, Romania, Macedonia, and the Czech Republic (only for companies).[1] Proponents believe the simplicity and efficiency of the flat tax is a key reason behind Eastern Europe's dramatic growth. Others believe it is more readily explained by a low starting base and large inward investment. Other countries employing flat taxes include Iceland, Kyrgyzstan, Mongolia, Hong Kong, Saudi Arabia, The United Arab Emirates, Bahrain, Somalia, Nigeria, Rwanda, Uruguay, Guyana, The Bahamas and Tonga.
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