The tax rate is the quota, the coefficient or the percentage that we apply on a base to calculate the payment of a certain tax.
The tax rate, according to the legislation, is also known as “tax rate”. Therefore, we are talking about two concepts that mean the same thing.
The tax rate of a certain tax, in other words, is the percentage or quota established by law regarding the tax and that we must pay to the Administration. This is always applied or calculated on a certain basis. When calculating it, the type of tax tells us the money that we must deliver to the Public Administration for that tax.
In practice, we call the tax rate the corresponding percentage established by the State to calculate a certain tax. In the case of the tax on the benefits of a company, we call the tax rate the percentage that the State says that we must give it from our benefits as taxes.
Let us imagine that the State establishes a tax rate of 23%. Grosso modo, this type of tax tells us that, of our profits, 23% corresponds to the State.
Depending on the tax in question, the tax rate will be one and the base will be another. Now, it is always calculated on a basis.
The VAT example
Let’s see another example, this time with the case of VAT, to better understand this concept.
In the case of VAT, the tax rate that VAT has in Spain is, in the case of general VAT, 21%.
Since it is a tax on consumption, the basis on which this type of tax is calculated is the sale price when we are going to consume something.
When we buy something, if the sale price is 18 euros and the tax rate is 21%, we calculate 21% on the 18 euros that the good we want to buy costs. In this case, 21% of 18 euros is 3.78 euros. So we must pay 3.78 euros more for taxes, in this case for VAT.
Types of tax rates
When we talk about tax rates, we should already know that the tax rate is the figure or percentage that we apply to a base to calculate the payment of a tax.
Now, is it a figure or a percentage?
To this question we must answer with “it depends”.
Depending on the tax, we can have a specific tax rate or a percentage rate.
The specific tax rate
The specific tax rate are fixed amounts that are applied on the units of a non-monetary tax base.
To understand it, we can look at the fuel tax in Spain. This tax is calculated with a tax rate that establishes that 24 euros of tax must be paid for every 1,000 liters of gasoline that we consume.
In this case, we say that the tax rate is specific due to the fact that it is established from the start, as a fixed fee that must be paid based on the liters of fuel that we consume. Unlike the percentage, it is not a percentage, but a scale that establishes a fixed fee that we must pay based on the selected base.
The percentage tax rate
Also, we have the percentage tax rate. This, as its name indicates, establishes a percentage that must be applied on a base, usually monetary. This is the most common and the one we have seen in the VAT example.
Now, just because it is a percentage does not mean that it is the same for everyone.
Within this type of tax or this tax rate, we can distinguish those that are proportional, from others such as progressive and regressive.
When it is percentage and proportional, the percentage is the same for all, regardless of whether the base is one or the other. A general percentage is applied, which is the same for everyone. The case of VAT is the best example to understand it.
When it is percentage and progressive, it means that we are talking about a percentage that increases depending on whether the base on which it is calculated increases. The higher the base, the higher the percentage. It is called progressive for that very reason, since it increases progressively, as the base on which it is calculated increases.
Finally, we have the regressive percentage. This works like the progressive, but in reverse. That is, the percentage is reduced as the base increases. However, it should be noted that few taxes in the world are created with the aim of being regressive. Moreover, when they are regressive, the State usually changes the calculation to prevent this from happening.
The tax rate and the tax quota
Once the tax rate is applied to the base on which the tax is calculated, the result we obtain, roughly, is what we have to pay to the Public Administration for that tax.
This is the tax bill.
The tax quota is the name that receives in Spain, and other Spanish-speaking places, the amount of money that we must pay to the State in concept of a certain tax.
In the VAT example, the sale price is 18 euros and the tax rate that we must apply is 21%. Once we apply it, we obtain that what we have to pay as VAT for having made this purchase is equal to 3.78 euros.
The tax rate, therefore, is 3.78 euros, which is the amount of tax that we must pay when calculating the tax rate.