Proportional taxes: The proportional taxes as introduced by the classical economists while discussing the theory of ability to pay. It is a type of tax in which, the same rate or same percentage is charged from all tax payers whatever the size of their income may be. The individuals are required to pay the same tax rate i.e. The proportion of their income. Merits of proportional tax: 1: Simple. The proportional tax is a very simple kind of taxation. 2: Equitable: It is an equitable method of revenue rising to the state. 3: No discouragement of entrepreneur: The entrepreneur is not discouraged because there savings and investment are partially affected due to a fixed tax rate. 4: It is certain: It is imposed on all the tax payers in accordance with the cannon of certainty. Therefore, the government certainly knows the amount of this tax. Demerits of proportional tax: 1: Unjust: It will be most unjust that a rich and poor are taxed at the same rate without considering their ability to pay. 2: Inequitable: It is inequitable due to the same burden of tax payment for all the tax payers. It is against the cannon of equality. 3: Inelastic tax: The government is unable to increase or decrease the rate tax during cyclical fluctuations of business.
