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With reference to the different systems of taxation, consider the following statements:
1. The percentage tax rate increases proportionally with the increase in the income under the Proportional Taxation
Regime.
2. A proportional income tax makes disposable income as well as consumer spending more sensitive to fluctuations
in GDP.
Which of the statements given above is/are correct?
1. The percentage tax rate increases proportionally with the increase in the income under the Proportional Taxation
Regime.
2. A proportional income tax makes disposable income as well as consumer spending more sensitive to fluctuations
in GDP.
Which of the statements given above is/are correct?
- a)1 only
- b)2 only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'D'. Can you explain this answer?
Verified Answer
With reference to the different systems oftaxation, consider the follo...
- A proportional tax is an income tax system that levies the same percentage tax to everyone regardless of income. A proportional tax is the same for low, middle, and high-income taxpayers. Proportional taxes are sometimes referred to as flat taxes. Proportional taxation is intended to create greater equality between marginal tax rates and average tax rates paid. Hence statement 1 is not correct.
- Proportional taxes reduce the autonomous expenditure multiplier because taxes reduce the marginal propensity to consume out of income. The proportional income tax acts as an automatic stabilizer – a shock absorber because it makes disposable income, and thus consumer spending, less sensitive to fluctuations in GDP as compared to progressive taxation. Hence statement 2 is not correct.
- Progressive tax is the one where the tax rate increases with the taxpayer’s income. An example for progressive taxation is: 10% tax rate for income of Rs 2 lakh, 20% for Rs 5 lakh and 30% for Rs 10 lakh. Here, the tax liability or the absolute amount as well as the proportion of income to be paid as tax increases with the income of the taxpayer.
Most Upvoted Answer
With reference to the different systems oftaxation, consider the follo...
Proportional Taxation System:
Proportional taxation, also known as a flat tax, is a system where the percentage of tax paid remains constant regardless of the individual's income.
Statement 1 - Incorrect:
Under the Proportional Taxation Regime, the tax rate remains constant regardless of the income level. Therefore, the statement that the percentage tax rate increases proportionally with the increase in income is incorrect.
Statement 2 - Incorrect:
In a proportional income tax system, since the tax rate remains constant, disposable income and consumer spending are not more sensitive to fluctuations in GDP compared to other taxation systems. Therefore, the statement that a proportional income tax makes disposable income as well as consumer spending more sensitive to fluctuations in GDP is incorrect.
Conclusion:
Therefore, neither statement 1 nor statement 2 is correct. The proportional taxation system does not involve an increase in the tax rate with an increase in income, and it does not make disposable income or consumer spending more sensitive to GDP fluctuations.
Proportional taxation, also known as a flat tax, is a system where the percentage of tax paid remains constant regardless of the individual's income.
Statement 1 - Incorrect:
Under the Proportional Taxation Regime, the tax rate remains constant regardless of the income level. Therefore, the statement that the percentage tax rate increases proportionally with the increase in income is incorrect.
Statement 2 - Incorrect:
In a proportional income tax system, since the tax rate remains constant, disposable income and consumer spending are not more sensitive to fluctuations in GDP compared to other taxation systems. Therefore, the statement that a proportional income tax makes disposable income as well as consumer spending more sensitive to fluctuations in GDP is incorrect.
Conclusion:
Therefore, neither statement 1 nor statement 2 is correct. The proportional taxation system does not involve an increase in the tax rate with an increase in income, and it does not make disposable income or consumer spending more sensitive to GDP fluctuations.
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With reference to the different systems oftaxation, consider the following statements:1. The percentage tax rate increasesproportionally with the increase in theincome under the Proportional TaxationRegime.2. A proportional income tax makesdisposable income as well as consumerspending more sensitive to fluctuationsin GDP.Which of the statements given above is/arecorrect?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'D'. Can you explain this answer? for UPSC 2025 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about With reference to the different systems oftaxation, consider the following statements:1. The percentage tax rate increasesproportionally with the increase in theincome under the Proportional TaxationRegime.2. A proportional income tax makesdisposable income as well as consumerspending more sensitive to fluctuationsin GDP.Which of the statements given above is/arecorrect?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'D'. Can you explain this answer? covers all topics & solutions for UPSC 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for With reference to the different systems oftaxation, consider the following statements:1. The percentage tax rate increasesproportionally with the increase in theincome under the Proportional TaxationRegime.2. A proportional income tax makesdisposable income as well as consumerspending more sensitive to fluctuationsin GDP.Which of the statements given above is/arecorrect?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'D'. Can you explain this answer?.
With reference to the different systems oftaxation, consider the following statements:1. The percentage tax rate increasesproportionally with the increase in theincome under the Proportional TaxationRegime.2. A proportional income tax makesdisposable income as well as consumerspending more sensitive to fluctuationsin GDP.Which of the statements given above is/arecorrect?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'D'. Can you explain this answer? for UPSC 2025 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about With reference to the different systems oftaxation, consider the following statements:1. The percentage tax rate increasesproportionally with the increase in theincome under the Proportional TaxationRegime.2. A proportional income tax makesdisposable income as well as consumerspending more sensitive to fluctuationsin GDP.Which of the statements given above is/arecorrect?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'D'. Can you explain this answer? covers all topics & solutions for UPSC 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for With reference to the different systems oftaxation, consider the following statements:1. The percentage tax rate increasesproportionally with the increase in theincome under the Proportional TaxationRegime.2. A proportional income tax makesdisposable income as well as consumerspending more sensitive to fluctuationsin GDP.Which of the statements given above is/arecorrect?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'D'. Can you explain this answer?.
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