If tax rate decreases with increase in taxable base, then this type of taxation is called:
Show answer & explanation
Correct answer: B
Explanation
The correct answer is option 2 i.e. regressive.
A regressive tax system is characterized by a tax rate that decreases as the taxable base increases. In this structure, individuals with lower incomes pay a higher percentage of their income in taxes compared to those with higher incomes. This can lead to a disproportionate tax burden on lower-income individuals, as the tax benefits disproportionately favor wealthier taxpayers. Consequently, regressive taxation often exacerbates income inequality, as those with less financial capacity contribute more relative to their income, making it a contentious issue in fiscal policy debates.