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If the rate of taxes is increased with increase in income, it is called progressive taxation. Suppose income of a person is $10,000 and he is asked to pay 5% tax. Suppose further that his income rises to $20,0000 and he is asked to pay 20% tax, which is under progressive taxation system. The amount of tax to the government increases more than proportionately to the income.

Equality:
Under this system, the richer have to pay high tax while poorer have to pay low tax because the utility of money for richer I less as compared to poorer.

Higher Revenue:
Under progressive tax system, revenue for government is increased.

Equality in income:
Inequality in income reduced through progressive taxation, as the more taxes are collected from rich.

Economical:
It is economical because the cost of collection does not increase with the increase in the rate of tax.

Elasticity:
This system is elastic. Government can raise its revenue by increasing the tax rate.

Full Employment:
The progressive taxation system is very helpful for achieving full employment. Progressive taxation is helpful is reducing the inequalities of wealth by transferring wealth from rich to poor. When inequality is reduced then propensity to consume is increased due to this investment and employment opportunities are increased.

Inconvenient:
Progressive taxation is inconvenient and pinches the tax payers very much.

Unequal Utility:
This system is based on the assumption, that if two persons have equal income then utility of money is also same for both of them.

Discourages Savings:
It is also pointed out that this system discourages savings. If savings are discouraged then investment means increase in unemployment.

False Statement:
As the people know that with increase in incomes tax rate will be also increase, so they presents the false statement and show less incomes that actual.

Expenditure on Luxury Goods:
Under this system, it is also assumed that if income of a person increases then he increase his expenditures on luxury goods while it is not necessary.

Conclusion
We conclude that progressive taxation system is very useful and widely accepted because it helps in reducing the inequalities in the country.

Category: Tax