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Silly question time: Why do I pay tax on my tax?

  • 04-12-2020 9:03pm
    #1
    [Deleted User]
    Posts: 14,344 ✭✭✭✭


    Hi folks,


    Using simple numbers for ease of explanation. Let's say you're a self employed baker, and you make bang on €10k every year. You pay a blanket 20% tax, so the following year you give revenue €2k.


    ... Repeat year on year, over and over...


    Why is it that the following year, revenue will still take 20% on 10k, instead of 8k? Considering you paid 2k in tax, you never actually seen that money. So into your pocket only went 8k, but you're still liable for tax on 10k?

    I'd have thought it fairer that when tallying up your bill for the following year, one of your expenses for this year is the 2k that revenue took?


    Am I a bit mad with this line of thinking?


Comments

  • #2
    TiGeR KiNgS
    Registered Users Posts: 1,435 ✭✭✭TiGeR KiNgS


    KKV wrote: »
    Hi folks,


    Using simple numbers for ease of explanation. Let's say you're a self employed baker, and you make bang on €10k every year. You pay a blanket 20% tax, so the following year you give revenue €2k.


    ... Repeat year on year, over and over...


    Why is it that the following year, revenue will still take 20% on 10k, instead of 8k? Considering you paid 2k in tax, you never actually seen that money. So into your pocket only went 8k, but you're still liable for tax on 10k?

    I'd have thought it fairer that when tallying up your bill for the following year, one of your expenses for this year is the 2k that revenue took?


    Am I a bit mad with this line of thinking?

    I dont think you are mad, just confused.

    In year 1 you 'pay' no tax to Revenue Commissioners as you only 'pay & file' your tax return in the following year. Your tax liaibility is in effect deferred until the following year (year 2).

    The issue you see is nothing more than a simple case of timing.


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