TYPES OF TAXATION SYSTEM:
Tax implication upon the citizens in a country depends
upon the types of taxation system prevailing in the country.
Prominently There are four type of Taxation System :
PROGRESSIVE TAXATION SYSTEM:
- In a progressive taxation system, taxation rate is directly proportional to the taxable income.
- Tax Rate increases with the increase of the taxable amount ie the income.
- In a progressive taxation system, People with lower incomes pay a lower percentage of tax in comparison to the person with higher income.
- In India, we are having progressive taxation system as tax rates are directly proportional to the incomes of individual.
PROPORTIONAL TAXATION SYSTEM:
- In a proportional tax system, taxation rate remains irrespective of the income or wealth of the individual.
- Proportional tax system is also said to be flat tax system as taxation rate does not depends upon income or wealth of the individual, rather remains constant.
- Taxpayers pay a set percentage of their income regardless of total income earned.
- For example, an income tax of 10% does not increase or decrease for individuals with different incomes.
REGRESSIVE TAXATION SYTEM:
- In Regressive tax system, the tax rate is uniform irrespective of the income.
- Tax rates being uniform, Low incomes earning individuals pay a higher percentage of that income in taxes in comparison to the individuals who are having high-incomes.
- Regressive taxation is just opposite to the progressive taxes.
- For example, if there is a sales tax of 7% on food items ,then it has a greater burden on lower-income earners than it does on the wealthy because the ability to pay is not considered in case of indirect taxes. Many states follow Regressive Taxation in US.
DEGRESSIVE TAXATION SYSTEM:
- In degressive tax system, the tax rate decreases as the taxable amount of income increases.
- Tax rate are higher when taxable income are lower.
- Tax rates are lower when taxable income are higher.
- It is in contrast to a progressive tax system .
- Degressive taxation is antipoor in the sense that it redistribute the wealth of poor amongst riches.
- Degressive taxation was implemented in swiss but there federal court strike it down.
