A regressive tax is the one where tax liability of the individual decreases with taxable income. Here, the tax rate decreases with increase in income. Basically, taxes are classified into progressive, proportional and regressive; based on the relative burden or liability of taxes. In the case of proportional taxes, tax liability increases in the same proportion. On the other hand, in the case of progressive taxes, the tax liability increases with increase in income.
Table: example for progressive, regressive and proportional taxes
|
Taxable income (Rs) |
Progressive tax (rate) |
Regressive tax (rate) |
Proportional tax (rate) |
|
10000 |
10% |
30% |
20% |
|
30000 |
20% |
20% |
20% |
|
50000 |
30% |
10% |
20% |
