Average tax rate – What is it, definition and concept | 2022

The average tax rate is percentage or coefficient that indicates the amount of a tax that a taxpayer must pay to the State. Once this tax rate is applied to the taxable base, the result will be the full amount that the taxpayer must pay.

This average tax rate serves to quantify the amount of a tax that must be paid, that is, it measures the part that goes to public authorities. It is calculated by dividing the tax liability by the taxable base and multiplying by one hundred to obtain a percentage.

This percentage is applied to the liquidable base and the result is the full installment. That is, what the citizen has to pay to the State.

Calculation of the average tax rate

The tax rate is applied directly to the tax base to calculate the full amount. Or in the event that there is any reduction, on the liquidable base.

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The formula to understand how this average tax rate is calculated is as follows:

Formula Average Tax Rate Page 0001

In order to understand this type, you must understand what the taxable base, the taxable base and the full amount consist of.

  • The tax base: It is the monetary or non-monetary amount that shows the economic capacity of the taxpayer.
  • The liquidable basis: It is the result of practicing, in the tax base, the reductions established by law for certain taxes or duties. We could say that it is the net base.
  • Tax rate: It is the result of applying the pertinent tax, for example, the Corporate Tax scale tax, to the taxable base.
  • The full fee: It is the result of applying the average tax rate corresponding to the tax base.


To understand it, let’s see an example as if it were a Personal Income Tax:

We are going to use a subject with a tax base of €120,000. There is a reduction of €20,000.

Taxable base: Taxable base – reductions – 120,000 – 20,000 = €100,000

Now we are going to apply the relevant tax, in this case at scale. The scale is as follows:

Average Tax Rate Scale Page 0001
  • For the first €50,000 you pay €2,500, that is, 5% of €100,000.
  • For the second €50,000 you pay €5,000. It is the result of 10% of 50,000 euros, which corresponds to the second tranche (50,001 – 100,000).
  • Total: €2,500+€5,000= €7,500. This will be the tax bill.

Now we can apply the average tax rate formula:

(Tax rate – €7,500 ÷ Taxable base – €100,000) x 100 = 7.5% This would be the average tax rate.

If this percentage is applied to the liquidable base, 7.5% x 100,000 = €7,500

The 7,500 euros will be the full fee to be paid to the State.

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