Question

9. Explain the difference between progressive and flat taxation and the benefits/drawbacks of each.

Answer 1

Progressive taxation is the one under which the tax rates increase with higher income slabs.Under flat taxation, the tax rates remain constant for all slabs of income.

Progressive taxation is equitable since rich people pay greater taxes. It reduces disparity in income. It yields more revenue due to higher rates for higher slabs of income. Cons of the system are that the poor people who are greater beneficiaries of Government resources pay lower taxes. There is greater tax evasion and it dampens the spirit of people to earn higher.

Flat taxation is simple to apply. It is equitable since all people pay same tax rates. However it suffesr from disadvantages- Flat tax does not create equality as the rich are treated at par with poor. It benefits the rich and penalizes the poor.