Tax allowance

Updated: Aug 20, 2021

A deduction from gross income allowed under the tax laws to reduce the taxable income of an individual or firm. Tax allowances may be given to encourage certain forms of activity: for example, firms are given tax allowances to encourage investment, and both individuals and firms receive tax allowances in respect of some charitable donations. This may be on grounds of equity, because having to pay the deductible item lowers ability to pay relative to a taxpayer with the same gross income but no comparable liability. Every tax concession reduces the tax base, which raises the tax rates needed to obtain any given total tax revenue.

Reference: Oxford Press Dictonary of Economics, 5th edt.

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James Knight
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James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.