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IAI Actuarial Core Principles · Business Finance · Personal and corporate taxation

A tax system is described as 'progressive' when the tax rate:

A progressive tax is one where the average rate of tax rises as income rises, so higher earners pay a larger proportion of their income. This differs from a proportional tax with one rate for all and from a regressive tax where the burden falls.

  1. AIs the same percentage for every taxpayer regardless of income
  2. BRises as the taxpayer's income rises, so the average rate increases with incomeCorrect
  3. CFalls as the taxpayer's income rises
  4. DApplies only to expenditure and not to income
  5. Is a fixed rupee amount per taxpayer

Explanation

A progressive tax takes a higher proportion of income as income rises, so the average rate increases. A flat tax uses one rate for all, while a regressive tax takes a falling proportion of income as income rises.

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