Regressive Tax

Reviewed by Anjaneyulu | Updated on Aug 27, 2020

Introduction

Regressive tax is a tax where the tax rate decreases as the amount subject to taxation increases, i.e. the tax rate progresses from high to low. This tax leads to individuals with low income bear the highest burden of regressive taxes. Such a tax does not consider the ability to pay.

What is Regressive Tax?

Indirect taxes, such as Goods and Services Tax (GST) is an example of regressive tax as the rich and poor pay the same tax in purchasing everyday products and services.

A few other regressive taxes apart from indirect tax are: 1. Tax on intoxicants, such as alcohol and tobacco, are consumed more by lower classes. 2. Toll tax where every passing vehicle of the same type has to pay irrespective of the income of the passenger.

Who is eligible to pay?

Regressive taxes are to be paid by people who qualify under the certain laws and regulations. The respective authorities will decide the tax rates from time to time.

Regressive tax, generally, means imposing a greater amount from those with lower income. In terms of individual income and wealth, a regressive tax imposes a more significant burden on the poor than on the rich when related to resources.

There is an inverse relationship between the taxpayer's ability to pay and the tax rate when measured using income, assets or consumption. These taxes usually reduce the tax burden of the people with a higher ability to pay because the relative burden will be on those with a lower ability to pay.

A detailed breakdown of the procedure for filling the tax

All the regressive taxpayers have no liability of filing returns. The government specifies the taxpayers who have to file their returns with authorities.

For example, the GST payers (except the end-consumer) have to file returns with the GST authorities. But, the toll taxpayers have no liability to furnish the returns with the authorities.