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Proportional Tax |
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Proportional tax is that form of tax which is maintained between the proportion or percentage paid in this context and the payment of tax remains constant as income of the taxpayer changes. Proportional tax contrasts with the regressive tax where the proportion paid falls as increases in the rate of income, and progressive tax is that form of tax where the proportion paid increases. Value-added tax or VAT is often considered as a great example of a proportional tax.
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Fo9r the purpose of complete understanding of the proportional tax the realization about the progressive and regressive tax are also necessary.
- Progressive Tax: A progressive tax is that form of tax which is imposed so that the effective tax rate enhances as the amount to which the rate is enforced, also increases. Progressive tax, this very term is described as a distribution effect, which can be applied conveniently to any type of tax system, either be it income or consumption and that meets the requirements of the definition. Progressive tax is frequently applied with reference to the income taxes. In these cases those people who are having more disposable income have the capability to pay a higher percentage of that income in tax in comparison to those who are having a package of less income. The term progressive refers to the way the rate of tax is progressed from low to high. The term progressive tax can also be applied for the purpose of the adjustment of the tax base by using tax credits, tax exemptions or selective taxation that would nourish the progressive distributional effects.
- Regressive Tax: A regressive tax is a particular form of tax which is imposed so that the effective tax rate decreases as the amount of money to which the rate is applied increases consequently. The term regressive tax depicts a effect of distribution which can be applied to any type of tax system both income or consumption and ultimately the requirements of the definition can be fulfilled. It is factor is frequently applied in reference to fixed taxes and in these cases every person is required to pay the same amount of money. The term regressive refers to the way the rate of tax which progresses from high to low. The opposite of a regressive tax is a progressive tax, where the tax rate increases as the amount to which the rate is applied increases. In between these two kind of taxes there is the much discussed proportional tax where the tax rate is fixed as the amount to which the rate is applied and it also increases at the certain period of time. Regressive taxes causes in the reduction of the tax incidence of people who are having a higher rate of income and during this time they shift the incidence disproportionately to those who are having a smaller rate of income.
Hence the Proportional Tax can said to be the meeting point of both the progressive and regressive tax. So, wen it comes to the calculation of both the progressive and regressive tax, then it can easily be determined.
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