Question

With reference to the taxation policy.

Differentiate between progressive and regressive taxes giving an example for each.

Answer 1

S. No.	Progressive tax	Regressive tax
1.	Under progressive taxation, the rate of tax increases as tax payer's income increases.	A regressive tax is one in which the rate of tax decreases as the tax payer’s income increases.
2.	It has more financial impact on higher income individuals.	Regressive taxes have a greater impact on lower income individuals.
3.	It is based on the principle of ability to pay.	It is not based on the principle of ability to pay.
4.	Example - Income tax.	Example - Sales tax.