effective tax rate

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The average tax rate that is applicable in a given circumstance. In many cases the actual rate of tax applying to an amount of income or to a gift may not, for various reasons, be the published rate of the tax; these reasons include the necessity to gross up, the complex effects of some reliefs, and peculiarities in scales of rates. The effective rate is therefore found by dividing the additional tax payable as a result of the transaction by the amount of the income, gift, or whatever else is involved in the transaction.

Subjects: Financial Institutions and Services.

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