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Question
Citing reason state the advantage of a progressive tax over proportional tax.
Answer in Brief
Solution
- Progressive tax systems are created to charge a higher tax rate on persons or businesses with higher incomes, providing a benefit of equity and fairness.
- Proportional tax affects low-income earners and high income earners equally. But a progressive tax has more financial impact on high income earners than on low income earners. That is why a progressive tax is considered better and more fair.
- Example: In a progressive system, a person earning ₹ 100,000 per year may pay 25% in taxes, while someone earning ₹ 30,000 may pay only 10%. A proportionate tax system would require both to pay the same percentage, say 15%, with the lower-income person bearing most of the cost.
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Role of State in Economic Development
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