TutorOn by Sanath Withanage

Question:

A main feature of a regressive tax can be stated as
(1) low income earners pay a higher proportion of their income in tax than high income earners.
(2) marginal tax rates exceed average tax rates.
(3) the cost of collecting the tax exceeds the revenue raised.
(4) the marginal rate of tax is higher for high income earners than for low income earners.
(5) the tax rate increases as income increases.

Correct Answer:

(1)

Answer Explanation:

A tax is regressive if the average tax rate (tax paid as a percentage of total income) falls as income rises. This places a heavier relative burden on the poor, who must spend a larger proportion of their limited income on the taxed items (common with indirect taxes like VAT) compared to the wealthy.

Topic: Taxation Year: 2024