Q. Many a times we read in the financial newspapers about a term “Progressive Tax System”. Consider the following statements in this context: 

1. Progressive tax is harsher on the poor sections of the society
2. In Progressive tax, average tax rate is less than the marginal tax rate

Which among the above statements is / are correct?

Answer: Only 2 is true
Notes: A progressive tax system imposes higher tax rates on higher income levels, meaning the average tax rate for individuals typically decreases as income increases. Thus, statement 1 is incorrect. it is designed to alleviate the tax burden on poorer sections. Statement 2 is correct, as in a progressive system, the marginal tax rate (the rate on the last dollar earned) is higher than the average tax rate. This structure aims to promote equity in taxation.