CA Foundation · Business Economics · Public Finance
A tax is levied so that the burden on a taxpayer rises more than proportionately as income rises, meaning the average tax rate increases with income. Such a tax is called:
This is a progressive tax. Under it the average tax rate rises as income rises, so richer taxpayers pay a larger percentage of their income. A proportional tax has a constant rate, and a regressive tax has a falling rate as income increases.
- AProportional tax
- BProgressive taxCorrect
- CRegressive tax
- DLump-sum tax
Explanation
In a progressive tax the average rate rises with income, so higher earners pay a larger share of income. A proportional tax keeps the rate constant, while a regressive tax takes a falling share as income rises. A lump-sum tax is a fixed amount independent of income.
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