CA Foundation · Business Economics · Public Finance
Ms. Meera earns Rs 4,00,000 and pays tax of Rs 20,000. When her income rises to Rs 6,00,000, she pays tax of Rs 42,000. What is her marginal rate of tax on the additional income, and what type of tax structure does this indicate?
The marginal tax rate is 11%, since extra tax of Rs 22,000 arises on extra income of Rs 2,00,000. The average rate rises from 5% to 7%, so the tax structure is progressive rather than proportional or regressive.
- A11%, progressiveCorrect
- B5%, proportional
- C7%, regressive
- D11%, regressive
Explanation
Additional income is 2,00,000 and additional tax is 22,000, so marginal rate = 22,000/2,00,000 = 11%. Initial average rate is 20,000/4,00,000 = 5%; the new average is 42,000/6,00,000 = 7%. Average rate rises, so the structure is progressive, not regressive.
Did you get it right without looking?
One question tells you little. A timed set on Public Finance shows your real accuracy, how long you take and where you lose marks.
More Public Finance questions
- Which of the following best illustrates the 'free rider' problem in the provision of a public good?
- Which of the following is an example of a merit good?
- A city municipal corporation introduces a congestion tax on vehicles entering the central business district during peak hours. The primary o…
- When the Government of India increases the rate of Goods and Services Tax (GST) on a particular service from 12% to 18%, and demand for that…
- Which of the following is an example of a public good in the economic sense?
- A state government introduces a progressive tax on luxury vehicles. The average tax rate increases from 8% to 14% as the vehicle's price ris…