Question

Why would an effective tax rate fluctuate?

Answer 1

Effrctive tax is the actual tax to be paid by the company and this tax varies depending on the following factor:

1. Loss in previous years: companies get tax benefits to cover the losses incurred in last few years, again this varies from country to country

2. Foreign operation sales: if a comapco has its revebue generating from other countries then the rax rate of that country is applied and hence, a company with multiple conuntry operations will have to prepare tax statements based on the respective tax laws

3. Incentives: sometimes to promote certain industries or region, government provides tax incentives such as lower tax to attract corporates