a    tr   t re in ndia         17.3
     Progressive tAxAtion                                        rate of taxes point of view. Such taxes have fixed
                                                                 rates for every level of income or production, they
     This method has increasing rates of tax for
                                                                 are neutral from the poor or rich point view or
     increasing value or volume on which the tax is being
                                                                 from the point of view of the levels of production.9
     imposed.7 Indian income tax is a typical example
                                                                 Usually, this is not used by the economies as an
     of it. The idea here is less tax on the people who
                                                                 independent method of taxation. Generally,
     earn less and higher tax on the people who earn
                                                                 this mode is used as a complementary method
     more—classifying income earners into different
                                                                 with either progressive or regressive taxation.
     slabs. This method is believed to discourage
                                                                 If not converted into proportional taxes, every
     more earnings by the individual to support low
                                                                 progressive tax will go on increasing and similarly
     growth and development unintentionally. Being
                                                                 every regressive tax will decrease to zero, becoming
     poor is rewarded while richness is punished.
                                                                 completely a futile tax methods. That is why every
     Tax payers also start evading tax by showing                tax, be it progressive or regressive in nature, must
     lower unreal income. But from different angles              be converted into proportional taxes after a certain
     this tax is pro-poor and taxes people according             level.
     to their affordability/sustainability. This is the
     most popular taxation method in the world and
                                                                    a Good Tax sysTeM
     a populist one, too.
                                                                 What are the characteristics of a good tax system?
     regressive tAxAtion                                         There has always been a debate among economists
     This is just opposite to the progressive method having      and policymakers on the issue of design of the
     decreasing rates of tax for increasing value or volume      tax system. Taxation in developing economies
     on which the tax is being imposed.8 There are not           has been even more debated as the trade-off
     any permanent or specific sectors for such taxes. As        assessment generates enough controversy. Main
     a provision of promotion, some sectors might be             debatable issues in the design of a tax system
     imposed with regressive taxes. As for example, to           are whether progressive or regressive taxation,
     promote the growth and development of small scale           direct tax or indirect tax collections should be
     industries, India at one time had regressive excise         higher, whether revenue deficit is better, etc. The
     duty on their productions—with increasing slabs of          controversies set apart, there is a broad consensus
     volume they produced, the burden of tax used to go          on five principles10 of a good tax system, among
     on decreasing.                                              economists and the policymakers:
          This method while appreciated for rewarding the
     higher producers or income-earners, is criticised for
     being more taxing on the poor and low-producers.            Though fairness (i.e., the first criteria of a good tax
     This is not a popular mode of taxation and not as per       system) is not always easy to define, economists
     the spirit of modern democracies.                           suggest inclusion of two elements in the tax
                                                                 system to make it fair namely, horizontal equity
     ProPortionAl tAxAtion                                       and vertical equity. Individuals in identical or
     In such a taxation method, there is neither                 similar situations paying identical or similar taxes
     progression nor regression from the point of view              9.  Samuelson and Nordhaus, Economics, p. 329.
                                                                   10.  Stiglitz and Walsh, Economics, p. 382. A comprehensive
        7.   Samuelson and Nordhaus Economics, 329; Stiglitz and        analysis of good tax structure is also given in Meade
             Walsh, Economics, p. 380.                                  Committe Report, Institute for Fiscal Studies (IFS),
        8.   Ibid.                                                      Washington DC, 1978.