SSC CPO 2025 PYQ — Question 98

Answer: They impact all income groups equally.

Explanation –

In economics, indirect taxes (such as GST and VAT) are considered regressive because they are applied at a uniform rate across all income groups. This implies that both a poor individual and a wealthy individual must pay the exact same amount of tax on the same commodity (such as soap or biscuits). Since a poor individual possesses a lower income, the burden of that tax when measured as a proportion of their total income is significantly heavier for them compared to a wealthy individual. Conversely, in a progressive tax system such as Income Tax the tax rate increases as income rises. This characteristic of indirect taxes places a greater financial strain on the lower-income strata of society; for this reason, they are termed regressive from the perspective of economic justice.

Additional Points –

Direct Tax: This is based on the principle of 'ability to pay' (e.g., Income Tax).

Regressive Effect: A tax is considered regressive when the effective tax rate appears to decrease as income increases (when viewed in proportional terms).

Potential Exam Questions and Answers

Question: In which type of tax system does the tax rate increase as income rises?

Answer: Progressive tax (e.g., Income Tax).

Question: To which category of taxes does GST belong Direct or Indirect?

Answer: Indirect tax.