Concept:A proportional tax is one in which the same percentage of income is paid as tax, regardless of the level of income.
Explanation:In a proportional tax system, the tax rate remains constant, so tax liability
T=tY, where
Y is income and
t is the fixed tax rate.
This means higher-income earners pay more in absolute terms but the same proportion of their income as lower-income earners.
When tax rates are plotted against income, the curve for a proportional tax appears horizontal.
It is not progressive, because a progressive tax has an increasing rate as income rises.
It is not regressive, because a regressive tax has a decreasing rate as income rises.
It is also not a value added tax, since that is a tax on consumption rather than a direct income-based tax structure.
The curve labelled II therefore represents a proportional system of taxation because the rate is fixed at all income levels.
Answer:A. proportional tax
