Progressive Taxation System

A progressive taxation system is one in which the income tax rates on an individual increases with the increase in his income. The Indian Taxation System is a typical example of a progressive taxation system, where an individual having the minimum income are exempted from the payment of tax, and the tax rate surges as an individual increases his income from various sources. 

A progressive taxation system is generally levied in an economy to reduce income gaps between the rich and poor sections of the society. As the income of the richer section tend to expand, they pay more of tax to the government, which is ultimately used in providing various relaxations and subsidies to the poorer sections of the country. This way those below poverty line are able to manage their livelihood with the assistance of the rich's wealth. This type of taxation system is best suited for the economies who have a large portion of their population as not very rich category. Countries like South Africa, India, United States of America and even ancient Rome have successfully implemented the progressive taxation system and have took maximum contribution from the rich people of the country.

 

Example: In India, an individual who has income less than Rs. 250,000 are exempted from the payment of tax. Those within the income range of Rs. 250,000-500,000 are levied a tax rate of 5%, those within the income range of Rs. 500,000-1000,000 are charged @20% and those having income greater than Rs. 1000,000 have to pay tax @30% of the taxable income. Thus, India becomes a very reliable example of a Progressive Taxation System.