Progressive Tax & Regressive Tax

Introduction

Taxation is essential for any modern economy. It is a major source of income for the government. There are multiple ways taxation is categorized into. Progressive Taxation and Regressive taxation are two of such categories one the basis of progressivity. Progressive taxation and Regressive Taxation exhibit contrasting characteristics and impact taxpayers in completely different manner. Some of the basic differences between progressive and regressive taxation are presented below.

Difference Between Progressive Taxation and Regressive Taxation

Basis	Progressive Taxation	Regressive Taxation
Structure	In this taxation, the tax rate increases  with a rise in income.	In this structure, the tax rate decreases with the decrease in income.
Income Distribution	This taxation contributes to reduction in income inequality as it imposes higher tax burden on high-income.	This taxation may contribute to income inequality as it imposes a high tax burden to low-income individuals or entities.
Tax Liability	High income individuals and entities have higher tax liability due to higher tax rates.	Low income individuals and entities have higher tax liability due to relatively higher tax rates.
Equitable	Progressive taxation is relatively fair as it imposes tax based on the ability to pay.	Regressive taxation is comparatively less equitable as it imposes high tax to low income individuals or entities.
Benefits	Progressive taxation is beneficial to low-income groups.	The regression taxation is beneficial to high-income groups.
Impact on Income	This taxation has a higher impact on disposable income as high tax is imposed on high income.	The taxation has comparatively lower impact on disposable income as higher tax is imposed on lower income individuals or businesses.
Government Revenue	Higher government revenue as high taxation is imposed on high income.	Comparatively lower government revenue as the tax burden is imposed on low disposable income individuals or entities.
Association	Progressive taxation is associated with direct taxes.	Regressive Taxation is associated with indirect taxes.
Examples	Tax on investment income and real estate are in progressive form	Sales tax, gas tax and payroll tax are examples of regressive tax.

DIRECT TAXATION AND INDIRECT TAXATION

Reference

1. Navi Blogs