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Question
With reference to the taxation policy.
Differentiate between progressive and regressive taxes giving an example for each.
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Solution
| 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. |
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