A tax which falls more heavily on people with low incomes than on those with high incomes, consumption of some commodities depends on the size of the family than on income. The total revenue requires by a modern state is so great that it cannot all be provided from direct or income taxes. All the indirect taxes imposed on the basic necessities are regressive in nature. It is the opposite of a progressive tax.
Merits of Regressive tax:
1. Convenient: These taxes are paid in the shape of price of commodities. People pay these taxes when they buy commodities.
2. Increase in investment: The poor section of the economy bears the burden of these taxes. The aggregate demand increases which encourages the more investment.
3. No Evasion: The poor section of the economy is not in a position to evade these taxes.
Demerits of Regressive Taxes:
1. All T axes are not regressive: All indirect taxes are not regressive in nature. Many expensive articles that are taxed being many expensive articles that are taxed being beyond the means of people in the lower income group.
2. In Justice: The tax burden decreases with increase of income. The incident of tax is greater on poor than on the rich. Therefore it is unjust method of taxation.
3. Non Productive: These taxes are usually implemented or low priced commodities. These commodities are consumed by low income consumers. There is a discouragement in the production of theses commodities.
Merits of Regressive tax:
1. Convenient: These taxes are paid in the shape of price of commodities. People pay these taxes when they buy commodities.
2. Increase in investment: The poor section of the economy bears the burden of these taxes. The aggregate demand increases which encourages the more investment.
3. No Evasion: The poor section of the economy is not in a position to evade these taxes.
Demerits of Regressive Taxes:
1. All T axes are not regressive: All indirect taxes are not regressive in nature. Many expensive articles that are taxed being many expensive articles that are taxed being beyond the means of people in the lower income group.
2. In Justice: The tax burden decreases with increase of income. The incident of tax is greater on poor than on the rich. Therefore it is unjust method of taxation.
3. Non Productive: These taxes are usually implemented or low priced commodities. These commodities are consumed by low income consumers. There is a discouragement in the production of theses commodities.
