Question

Government raises funds by imposing taxes based on rates of proportion to perform following protective economic and social functions:
A. Proportional tax
B. Progressive tax
C. Regressive tax
D. Degressive tax
E. Service tax

• A. B only
• B. A, B and E only
• C. A, B and C only
• D. A, B, C and D only

Hint:

Taxes classified by rate-to-income proportion are Proportional, Progressive, Regressive, and Degressive. Direct and indirect taxes (such as Service Tax) are classified by tax incidence instead.

Answer 1

The Correct Option is D

Step 1: Understanding the Concept:
In public finance, taxes are classified into different systems based on the proportion of tax rate to the level of taxpayer income.

Step 2: Detailed Explanation:
Let us analyze the taxonomic classifications of taxes based on rate proportion:
- Proportional Tax (A): The tax rate remains constant as income increases (e.g., flat tax).
- Progressive Tax (B): The tax rate increases as the taxpayer's income increases.
- Regressive Tax (C): The effective tax rate decreases as income increases, putting a higher burden on low-income groups.
- Degressive Tax (D): The tax rate increases up to a certain limit, after which it becomes flat or proportional.
These four systems are defined by their proportional rates relative to income.
- Service Tax (E): This is a specific type of indirect tax levied on service transactions, not a structural classification based on income proportion.
Therefore, A, B, C, and D are the tax classifications based on rate proportion.

Step 3: Final Answer:
The correct tax classifications are A, B, C, and D, matching Option (D).