- Progressive Tax:
- Tax percentage increases with an increase in income.
- Example: Personal Income Tax (higher earners pay a higher percentage).
- Aims to reduce income inequality.
- Regressive Tax:
- Tax percentage decreases with an increase in income.
- Example: All indirect taxes (like GST).
- A poor person pays the same absolute tax as a rich person on a good.
- This means the poor person pays a higher percentage of their income as tax.
- Can exacerbate income inequality.
- India’s fiscal system uses both to balance revenue generation and equity.