Progressive Tax : Definition, Advantages, Limitations etc.

What is Progressive Tax?

A progressive Tax is the Tax which is varied in proportion to the earnings of a person. If earnings increases, the tax will be increased and if the earnings decreases the tax will be decreased. In a word, progressive tax applies in a higher percentage rate when the income is going higher and when the income is lowered, the rate will be lower too.

The purpose of Progressive tax is to minimizing the tax percentage of lower income people who spends a higher portion of their income to maintain their standard of living. It is considered that a rich person can easily afford their basic needs and they have surplus money in their hand. Most of the countries are using progressive tax so that their lower income people feel comfort.

The Advantages of a Progressive Tax

The advantages of Progressive Tax System are as follows:

  • Progressive Tax system reduces the tax burdens of lowering income people
  • Progressive Tax system helps to maximize the revenue collection of the Government because when income increases the tax percentage also increases.
  • Tax Collection through progressive tax system is higher than the flat taxes or regressive taxes system.

Disadvantages of Progressive Tax

Critics of Progressive Tax says that the tax system makes the discrimination between a higher level income people and a lower level income people. They says this is the system which is totally demotivating for the reach people because reach people investing surplus income and creates employment opportunity for the lower level people which could reduce their poverty and increase the living standard. They says, Government collecting money and donates the fund in a non-productive area which never creates an employment opportunity and can not change the living standard of the lower income people.

Conclusion

Taxation is nothing just a part of government fiscal policy that aims to reach the national goals. Tax is one of the major sources of country’s finance. Progressive tax helps the government to collect maximum amount of its budgeted figure. But this tax system always demotivating for the reach people who always contributes to the national economy and reduces the government’s burden by creating employment for the people.