Why isn’t corporation tax graduated like income tax is?

Question

Hi all

This may be a bit more UK focused, but from what I can see it applies to a good few other countries too.

In the UK, personal income tax is graded based on income, with a tax free threshold, then the basic income tax level between £~12,000 to £50,000, then a higher rate above £50,000, then another band too. This seems fair as the more you earn, the more of that ‘higher’ income gets taxed.

Why isn’t this the same for corporation tax? This is a flat rate regardless of turnover/profit, with small companies having to pay the same proportion of their profits as large multinational companies. Wouldn’t it be fairer to have bands like personal income tax?

In: Economics

Answer 1

Because corporate tax has deductions for expenses, and corporations have wildly different expense situations. In addition, there aren’t that many corporations to keep track of. This means it makes sense to keep track of exact expenses for corporations and only tax them on their exact profit. If you tried to tax them on estimated profit, then you’d be wayyyy off in either direction for most companies.

For individuals, most people have fairly similar expense situations, so instead of keeping track of exact expenses for individuals, we use stuff like the standard deduction and graduated tax brackets to create a similar effect where people are only taxed on ‘estimated’ profit. And for most people, this ‘estimate’ is fairly accurate. People who have particularly non-average expense situations can choose to itemize, but this generates a ton of paperwork to keep track of because there’s just so many people, so we don’t want everyone to itemize.