CA Foundation · Business Economics · Public Finance
A tax is levied such that the tax rate rises as the taxpayer's income rises, with the average rate of tax increasing with income. Such a tax is called:
This is a progressive tax, because the rate of tax, and so the share of income paid, increases as income rises. A proportional tax keeps the rate constant, a regressive tax lowers the share as income rises, and a lump-sum tax is a fixed amount.
- AProgressive taxCorrect
- BProportional tax
- CRegressive tax
- DLump-sum tax
Explanation
In a progressive tax the average tax rate rises as income rises, so higher earners pay a larger proportion of income. A proportional tax keeps the rate constant, and a regressive tax takes a smaller share from higher incomes. A lump-sum tax is a fixed amount independent of income.
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