A progressive tax system implies:
Options
AHigher tax rate for lower income
BSame tax rate for all
CHigher tax rate for higher income
DLower tax rate for higher income
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Public FinancePYQ - May 2019 (Inter)Question 123 of 20
All Questions Correct Answer
✅ Option c — Higher tax rate for higher income
All Options:
- AHigher tax rate for lower income
- BSame tax rate for all
- CHigher tax rate for higher income
- DLower tax rate for higher income
Detailed Solution & Explanation
To understand the concept of a progressive tax system, let's break it down:
• A progressive tax system is a type of tax structure where the tax rate increases as the taxpayer's income increases.
• This means that individuals with higher incomes are taxed at a higher rate compared to those with lower incomes.
• The idea behind this system is to reduce income inequality by taking a larger share of income from the wealthy and using it to fund public goods and services that benefit the entire society.
The correct answer is based on the definition of a progressive tax system, which is designed to redistribute wealth and income.
Some options are incorrect because they contradict the basic principle of progressive taxation, such as having a higher tax rate for lower income or the same tax rate for all, which would be a flat tax system.
In contrast, a progressive tax system aligns with the principles of equity and fairness in taxation, as it takes into account the taxpayer's ability to pay.
About This Chapter: Public Finance
Paper
Paper 4: Business Economics
Weightage
10%
Key Topics
Fiscal Policy, Budget, Market Failure
This chapter deals with government finances — how the government earns (taxation) and spends (expenditure) money. Key topics include Fiscal Policy, types of taxes (Direct and Indirect), the Union Budget, Public Debt, and the concept of Market Failure and how government intervention corrects it.
View Official ICAI SyllabusExam Strategy Tip
Focus on the difference between Revenue and Capital items in the budget. Understand Fiscal Deficit and its implications. Tax-related MCQs are commonly asked.
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