| Many a time we read in financial newspapers about a term "progressive tax system". Consider the following statements in this context |
| Progressive tax is harsher on the poor sections of the society |
| In progressive tax, average tax rate is less than the marginal tax rate. Which among the above statements is/are correct? |
A) Only A is true
B) Only B is true
C) A & B are true
D) Neither A nor B are true
Correct Answer: B
Solution :
[b] Progressive tax is the taxing mechanism in which the taxing authority charges more taxes as the income of the taxpayer increases. A higher tax is collected from the taxpayers who earn more and lower taxes from taxpayers earning less. The government uses a progressive tax mechanism. Under progressive taxes, it is believed that people who earn more should pay more. The income tax is divided into slabs. As the income of the tax payer crosses a benchmark income, a new rate of tax (higher than before) is charged to him.
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