What do you understand by progressiveness and regressiveness in the taxes? Make a comparison of direct and indirect taxes on this basis.

Model Answer:
Progressive Tax follows the principle of ‘ability to pay’ because they are levied on the basis of individual’s income and wealth. Since, ability to pay can be measured, the direct taxes are imposed at progressive rate whereby richer persons pay higher taxes in comparison to the poor person. Regressive tax is  that, which takes a larger percentage from low-income people than from high-income people. A regressive tax is generally a tax that is applied uniformly and is indirect in nature. This means that it hits lower-income individuals harder. The direct taxes are easy to collect in comparison to indirect taxes because a tax payer makes his own payments. It is generally paid as large amount and sometimes involves too much personal information. Further, since there is no scientific principle of defining the degree of progression, the direct taxes are fixed arbitrarily. Direct taxes are easy to manipulate and collect in comparison to indirect taxes.
Indirect taxes have wider coverage and broad base. So, the governments end up collecting more revenues as the taxes cover almost every goods. Since the indirect taxes are a part of the price of commodities; these taxes are generally not evadable. Indirect taxes inflate the price of the goods, they lead to inflation. Also, since the indirect prices are paid concealed in the price, they don’t bring on civic awareness among the taxpayers in contrast to the direct taxes. (222 words)

Topics: GS-III: Indian Economy Issues Relating to Planning