Regressive Taxation Example: Central and state taxation of cigarettes is considered Regressive where lower income classes pay higher rate of taxation in terms of their monthly income compared to their high income class counter parts. Sales tax on grocery products is also considered as regressive tax. This also includes taxes imposed on transport, housing and clothing.
Even lotteries are also considered as a form of regressive taxation. More than three crore people form the Rs.50,000 crore paper lottery market in India today.
Regressive Taxation Example
Jewelry made from bullion and precious stones 1%
Majority of food grains and goods of national importance like iron and steel 4%
Standard rate goods 12.5%
As per the data given above if we compare two individual’s (A&B for example) income where a gets Rs.50, 000 per month and B gets 10,000 per month: the tax on food grains will be
Person a Rs.2000 and person B Rs.400. the 4% tax levied on both shows the demarcation which a regressive tax generates.
Income tax paid by an individual is considered as progressive tax. The higher is the income the more tax is to be paid by the individual.
Where as the taxes levied on groceries, housing and clothing are considered to be regressive.Here there is a disproportion between the higher and the lower income class individuals. Lower income individuals mean the middle class and the poor. But for simple understanding “lower income individual” is referred in the context.