What are the three types of taxation?
Types of Taxation
Taxation systems can be classified into three main types, each based on how the tax burden is distributed among taxpayers. The three primary types of taxation are:
- Progressive Taxation
- In a progressive tax system, the tax rate increases as the taxable amount (usually income) increases. This means higher-income earners pay a larger percentage of their income in taxes compared to lower-income earners.
- Regressive Taxation
- In a regressive tax system, the tax rate decreases as the taxable amount increases. Lower-income earners end up paying a higher proportion of their income compared to higher-income earners. Sales taxes and excise taxes are common examples.
- Proportional Taxation
- Also known as a flat tax, a proportional tax system imposes the same tax rate on all taxpayers, regardless of income level. Everyone pays the same percentage of their income or value of the taxed item.
These systems can be applied to various forms of taxation, including income, sales, and property taxes.