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Home » Proportional Tax
 

Proportional Tax
According to the Proportional Tax system all levels of income are taxed at the same rate. The effective tax rate imposed depends on income or consumption. The rate of taxation can go proportionally or can progress from low to high or from high to low. The rate of tax is to be settled on the basis of different tax systems. In a proportional tax the effective tax rate remains fixed while the amount to which the rate is applied increases. The proportional tax can be levied on any kind of income or consumption.

The main feature of Proportional tax is that the tax rate remains constant and does not progress. The proportional tax is unlike the progressive or regressive tax. In case of progressive tax the effective tax rate increases with increase in the amount to which the tax has been levied. And in case of regressive tax it happens just the opposite to progressive tax. In case of regressive tax the tax rate decreases with increase in the amount to which the tax has been levied. In proportional tax the rate does not progress from high to low or low to high. It remains consistent with the changing of income or consumption. The tax rate in case of proportional tax maintains the equal tax rate and is not related to the income or consumption level. This type of tax is not in proportion to the higher or lower incomes.

Tax is a financial charge, which is imposed on an individual or any other entity by the state or a functional equivalent of a state. Tax had to be paid in the ancient days also though kinds. In the modern tax system tax is paid in the form of money. Tax or Taxation means an estimate. Tax is imposed on the sale or purchase of merchandise or livestock or on income and wealth. A tax is mandatory to be paid and non-payment of tax or incomplete payment of tax leads to criminal penalties. The Government imposes the tax on an individual or any other entity and it is collected by the government agency. Tax can be direct or indirect. The direct taxes are collected directly from the people or organizations and indirect tax is collected from some other person apart from the one on whom the tax has been levied.

In advanced economies Proportional taxes are not very common because in most of the countries taxes are levied in proportion to the household incomes and corporate profits. If income or profit of the taxed entity raises it gives a rise to the tax rate imposed on. In case of the people with low income sometimes the proportional tax takes the regressive nature, as the people with low income have to pay a high tax during taxable sales.

Proportional Tax is also called flat tax. In Proportional Tax the percentage or proportion to be paid as tax remains constant in spite of the changes in the income of the taxpayer.

An example of the proportional tax is the Value-added tax.