Definition of Regressive Tax Rate:
A regressive tax is a tax which burden falls more heavily on the poor than reach because the tax rate decreases as the income increases. A regressive tax is the opposite of a progressive tax.
Under this system, the tax rate reduces as the taxable amount increases. There is an inverse relationship between the tax rate and taxable income.
Advantages of Regressive Tax:
- Regressive taxes encourage savings and investment to the reach people from reduced taxes.
- Regressive tax system increase net revenue of the government.
- Due to flate rate of tax, its calculation is easier than progressive tax.
- It reduces brain drain
Disadvantages of Regressive:
- Poor people seriously suffer for the system.
- Principle of taxable capacity totally ignored.
- Increases the inequalities of income and wealth in the soceity.
Example of Regressive Tax:
Some examples of regressive tax include:
- Sales tax
- Property tax
- Excise tax
- Government feers, etc.
For another example, tax on total income of $ 100,000 is 10% but on $ 500,000 the rate is 5%. Hence, the tax will decrease more than proportionately.