Effective Tax Rate
Calculate the effective tax rate, a financial ratio that measures the percentage of pretax income that is paid as taxes.
The effective tax rate is calculated by dividing the income tax expense by the pre-tax income.
The formula is as follows:
\[\text{Effective Tax Rate} = \text{Income Tax Expense} / \text{Income Before Tax}\]Analysts compare the effective tax rate with the statutory rates of the countries a company earns its profits in; a rate well below them usually comes from profits booked in lower-tax countries, research credits or one-off benefits. Single years can be far from the trend because of settlements, law changes or the release of a valuation allowance, which can even make the rate negative, so forecasts usually start from a normalized rate. get_cash_tax_rate shows what was actually paid. A period with zero or negative income before tax has no meaningful tax rate and is NaN.
Also known as: ETR, actual tax rate.
Effective Tax Rate in Python or via the MCP
Install the Finance Toolkit with:
pip install financetoolkit -U
Then call get_effective_tax_rate as shown below.
from financetoolkit import Toolkit
toolkit = Toolkit(
["GOOGL", "META", "MSFT"],
api_key="FINANCIAL_MODELING_PREP_KEY",
start_date="2021-01-01",
end_date="2025-12-31",
)
toolkit.ratios.get_effective_tax_rate()
Or, after setting up the Finance Toolkit MCP, ask:
What effective tax rates did Alphabet, Meta and Microsoft report from 2021 to 2025?
Which returns:
| 2021 | 2022 | 2023 | 2024 | 2025 | |
|---|---|---|---|---|---|
| GOOGL | 0.162 | 0.1592 | 0.1391 | 0.1644 | 0.1678 |
| META | 0.1674 | 0.195 | 0.1756 | 0.1175 | 0.2964 |
| MSFT | 0.1383 | 0.1311 | 0.1898 | 0.1823 | 0.1763 |
Parameters
get_effective_tax_rate accepts the following parameters.
| Parameter | Type | Description | Example |
|---|---|---|---|
rounding | int | None | The number of decimals to round the results to. Defaults to None, which uses the rounding of the Toolkit (4 unless set otherwise). | 2 |
growth | bool | Whether to calculate the growth of the ratios. Defaults to False. | True |
lag | int | list[int] | The lag to use for the growth calculation. Defaults to 1. | 4 |
compound | bool | Whether the growth is the compound annual growth rate over the lag (e.g. lag=5 for the five-year CAGR) instead of the total change. Defaults to False. | False |
standardize | bool | Whether to standardize (Z-Score) the result. When combined with growth=True, standardizes the growth values instead of the raw values. Defaults to False. | True |
trailing | int | The number of periods to sum flows (income and cash flow statement items) over, with balance sheet items averaged over the same number of period ends. E.g. 4 with quarterly data gives the trailing twelve months (TTM) and 3 with annual data a three-year cumulative figure. Defaults to None, which uses single-period flows (per quarter and not annualized with quarterly data). | 4 |