A flat tax is a type of tax system in which the tax rate is the same for all individuals or entities, regardless of their income or financial status. Everyone pays the same percentage in taxes.
In a flat tax system, the basic principle is that everyone pays the same percentage of their income as taxes. The implementation and specifics of flat tax systems can vary across different countries.
There are different variations of flat tax, some common types include, Pure Flat Tax, Modified Flat Tax, Consumption-Based Flat Tax and Proportional Flat Tax.
Flat tax rate can vary depending on the country or jurisdiction. The rates range from around 13% to 33%. Some countries implemented flat tax rate include Russia, Estonia & some countries in Eastern Europe.
Formula for calculating tax liability under flat tax system is straightforward. It involves multiplying taxable income by flat tax rate expressed as a decimal (Tax liability = Taxable income x Flat tax rate).