Question

Q. With reference to degressive tax, which of the following statements is/are correct?

Select the correct answer using the code given below:

• A. 1 only
• B. 1 and 2 only
• C. 2 and 3 only
• D. 1,2,3 only

Answer 1

The correct option is B 1 and 2 only

Explanation:

Statements 1 and 2 are correct: Any tax where the rate of the tax decreases as the amount subject to taxation increases is known as degressive tax. This kind of tax puts more burden on the poor and relieves the rich, Thus this rate of tax is disproportionate to the ability of payment of taxpayers.

Statement 3 is incorrect: Degressive tax is a regressive tax system as, the more someone consumes or earns, the less they pay for it. The people with higher income and consumption pay less tax than people with less income and consumption.