What is the Difference between regressive and progressive tax?
17-Aug-2023 (In Tax Law)
What is Tax?
Tax essentially refers to the money we pay to the government which in turn is utilised to provide public services. The taxation policy of a government can be classified into numerous categories of which progressive and regressive form a part. Progressive tax derives its name from the fact that is increases with the amount being taxed. On the other hand, regressive tax refers to one which decreases with increase in the amount to be taxed by the government. Progressive and regressive taxes are completely opposite to one another and have different implications on the economic condition of a nation. Therefore, it is important to understand both progressive and regressive taxes and the differences between the two.
What is Progressive tax?
A progressive tax can be understood as one wherein the rates of tax increase with a rise in the taxable amount. Thus, the rates of tax are applied in a manner that higher income groups bear the tax burden, while the lower income groups are taxed accordingly with lower tax rates. Therefore, essentially the primary consideration in a progressive tax system is the assessee’s ability to meet the tax demands. It aims at taxing people in accordance to their incomes and is more kind on the poor or low-income groups.
What is Regressive tax?
A regressive tax system is one wherein the rates of tax reduce as the taxable amount increases. Therefore, in essence a regressive tax system seeks to burden lower income groups with higher rates of tax, while the high-income groups enjoy lower tax rates. A regressive tax is imposed consistently across all income groups since the assessee’s ability to meet the tax demands is not an active consideration in such a regime. It is for this reason that regressive taxes are unfair to poor and low-income groups.
Difference between progressive tax and regressive tax
The following are the essential points of difference between progressive tax vis-à-vis regressive tax:
1. Progressive tax signifies a taxation policy wherein the rates of tax increase with an increase in the amount being taxed. Regressive tax on the other hand refers to a taxation system wherein the rate of tax reduces with an increase in the taxable amount.
2. Progressive taxation policy essentially imposes tax on the income earned or the profit made by the assessee on the basis of an increasing schedule of rates. Conversely, under a regressive tax system, taxes are charged as a proportion of the assets either purchased or owned by an assessee.
3. A progressive tax system witnesses lower income groups enjoying the benefits of lower taxation rates, since the burden of tax collection is passed on to higher income groups. On the other hand, under a regressive tax system the benefits of reduced tax rates are enjoyed by the higher income groups and the burden is shifted to the lower income groups instead.
4. Progressive tax systems witness higher marginal tax rates as compared to the average tax rates. On the other hand, regressive tax systems witness a lower marginal tax rate than the average rate of tax.
5. Progressive tax essentially covers all the direct taxes which are the taxes paid directly to the government by assessees. Regressive tax on the other hand covers indirect taxes which although are also paid to the government but through an intermediary.
6. In a progressive tax system, the primary consideration while setting the tax rates is the capability of the assessee to meet the tax demands. In a regressive tax system on the other hand, the ability of an assessee to meet the tax demands is not a consideration at all.
Disclaimer: The above query and its response is NOT a legal opinion in any way whatsoever as this is based on the information shared by the person posting the query at lawrato.com and has been responded by one of the Divorce Lawyers at lawrato.com to address the specific facts and details.
No Comments! Be the first one to comment.
"lawrato.com has handpicked some of the best Legal Experts in the country to help you get practical Legal Advice & help."