 Taxes are the amounts shared by a state government in the earnings made by firms in that state. This means that if a firm earns a certain amount of profit, then a certain portion of that profit goes to the state as taxes. Taxes are the largest amount of cash flows in any financial statement for any business concern. The amount of tax payable or tax liability is the function of tax rate and the taxable profit. Either the tax rate is higher or the taxable profit is higher. Any of these two amounts, when higher, can lead to the higher amount of tax payable. There are three types of taxes, average tax, marginal tax and flat tax. By average tax, who means the average amount of tax on a single amount of rupee a firm pays to determine average amount of tax, we simply divide the tax payable over the taxable profit. By marginal tax, who means the additional amount of tax a firm has to pay on each additional amount of earning. By flat tax, who means a constant rate of tax, like in Pakistan for listed firms, there is a single tax rate, let's say 30%. This means that irrespective of the amount of profit the firm would require to pay tax at the rate of 30%. Corporate tax rate is set by the tax regulatory authorities and this tax system for corporation is a bit detailed system. It includes very much complexities in terms of exempted incomes or exempted expenses or taxability of the both. On the screen, you can see a comparison to understand marginal and average tax rate. In the first column, let's see there is a taxable income of $45,000 and the tax rate is 15%. If we apply this 15% to $45,000, the total tax comes to $6,750. To compute every tax rate, we would divide $6,750 over $45,000. The average tax rate comes to 15%. Now, what is marginal tax rate? If a person earns any amount above the $45,000, the tax rate would go to 25%. This means that a person if earns $45,000 and $1, then up till $45,000, the tax rate is 15% and on the additional $1, the tax rate would be 25%. Now, if a person earns an amount of $70,000, then what would be the tax amount? Then on first $45,000, the tax rate would be 15% and on the additional $25,000, the tax rate would be 25%. The total tax would come to $12,500. Now, if we want to determine every tax rate, we would divide $12,500 over the taxable income of $70,000. The tax rate would be 17.86%. So, there is a relationship between marginal tax and tax rates.