Advantages of Proportional Taxation

The first and foremost advantage of proportional tax is that since all people pay taxes at the same
rate there is no ambiguity as to rate of taxation which in itself lead to clarity in the minds of
taxpayers as well as tax collecting authorities because when it comes to taxes majority of people
do not understand the tax rates as there are many slabs and exemption related to those slabs and
therefore a clarity with regard to rate of taxation makes life easy for tax paying people.

Another benefit of proportional tax is that it reduces the tax theft from rich sections of society
because when tax rate are high for rich and low for middle and poor section than it is the rich
who try all the ways so that they don’t have to pay taxes and hence in a way proportional tax
leads to less tax leakage from the system.

Simple to understand by both tax authorities as well as tax paying individual which in turn lead to
better implementation by the tax authorities and acceptance by tax paying individuals.

Disadvantages of Proportional Taxation

The biggest drawback of proportional tax is that large section of the society that is middle and
lower class feel cheated because according to them those who have more money should also pay
more tax and those who have less money should pay less tax but since this system keeps tax rate
same for all there is frustration and anger among majority of people in the country as middle
and poor class people form 99 percent of the population of any country.

Proportional taxation cannot bring social justice. It widens inequality in the distribution of
income and wealth as the burden of this tax is borne mostly by the poor people.

since rich and poor are taxed at the same rate it leads to a huge gap between the rich and poor
leading to anger, frustration and in the worst case scenario may even lead to the revolt by middle
and poor class against affluent people and government of the country.
since rich and poor are taxed at the same rate it leads to a huge gap between the rich and poor
leading to anger, frustration and in the worst case scenario may even lead to the revolt by
middle and poor class against affluent people and government of the country.

Government receives less tax than another form of tax system because tax rate has to be kept low so as
to appease poor and middle class which in turn lead to the lower tax rate for rich also leading to loss of
revenue for the government of the country.

It is inelastic and, therefore, less productive. In other words, proportional tax contributes little
to the state exchequer.

Advantages and Disadvantages of Progressive Tax

Reduces Income Inequality

Perhaps the main benefit of a progressive tax system is that it helps reduce income inequality.
Income inequality is when one segment of the population controls a much larger share of the
economy's wealth than another. According to economist Roger A. Arnold, excessive inequality
can lead to political instability. By shifting the wealth of the society, the progressive tax system
helps reduce inequality.

Fairer

The progressive tax system is fairer than a tax system in which everyone is required to pay taxes at the
same rate because it requires those who are able to earn more to give more back to their government,
while those who are not able to earn as much are not required to pay as much back . In this way, those
who get the most out of a system are the ones who most support it.

As progressive taxes are based on the ability to pay principle, it tends to reduce disparities in the
distribution of income and wealth
It is elastic. A rise in income during prosperity is automatically taxed at a higher rate and a fall in income
during recession is taxed at a lower rate

Progressive taxation is viewed as an engine of social improvement. It is such rate of taxes that narrows
down the differences between the rich and the poor people of the society. It not only helps social
improvement by achieving a more equitable distribution of income but also by financing socially
desirable expenditures.

Disadvantages of Progressive Tax

Punishes Hard Work

A progressive tax system can be interpreted as punishing hard work by requiring those who
make more money -- presumably, through hard work and a judicious application of their skills
-- to give back a higher percentage of what they make. This effectively punishes hard work and
disincentives people from earning more money, as they will simply have to give more of it back.

The benefit principle of taxation goes against the progressive taxation system. The benefit principle
states that he who receives greater benefit from the government activities should pay higher tax rate.
Usually, poor people are the largest beneficiaries and, hence, they should be taxed more.

Progressive taxation dampens incentive to work and save and, thus, it lowers capital formation.

There is a greater scope for tax evasion in the case of progressive tax. It is the higher rate of taxes
that encourages taxpayers to evade their income by making false declarations of their incomes.

Direct Tax
A direct tax is paid directly by an individual or organization to the imposing entity. A taxpayer,
for example, pays direct taxes to the government for different purposes, including real property
tax, personal property tax, income tax or taxes on assets.
Indirect tax
An indirect tax is imposed on producers (suppliers) by the government. Examples include duties on
cigarettes, alcohol and fuel and also VAT. A carbon tax is also an indirect tax.