Taxation Definition, Type and Objectives Of Taxation,

Learn more about the forms of tax that apply to Nigerian residents

Here are three forms of tax that you might wear at some point, along with tips on how to minimize their impact.

                           Form Of Tax

• Proportional tax
• Regressive tax
• Progressive tax

• Proportional Tax: This is a system of tax where the tax payers ate required to pay certain percentage of whatever he or she earns as a tax. For example, if okeke earns fifty thousand naira (N50,000) a month, he will be required by tax authority to pay 10% of the (N50,000). Furthermore if Mr Obiekwe earns (N10, 000) monthly he is also required by tax authority to pay 10% of (N10, 000) he earns. 50 a proportional  system of tax emphasis is on the percentage not amount received. Some categories of people may be earning N10,000, N30, 000, N40,000, N50,000, N1m, N2.5M etc. Under proportional tax system everybody will pay 5%,10%,20% etc as may be required by tax authorities.
  A proportional tax is inequitable, as it falls relatively heavily on poor incomes. A progressive tax is more equitable, as a larger part is taxed on higher incomes it is justifiable just as the law of diminishing marginal utility operates in the case of money. Hence, the disutility of paying a high tax by rich is not as much as that of poor in paying even a low tax. Therefore, the rich should be taxed at a higher rate than the poor. A proportional tax is a tax imposed so that the tax rate is fixed, with no change as the taxable base amount increases or decreases. The amount of the tax is in
  proportion to the amount subject to taxation. “Proportional” describes a distribution effect on income or expenditure referring to the way the rate remains consistent (does not progress from “low to high” or “high to low” as income or consumption changes) where the marginal tax rate is equal to the average tax rate.
  It can be applied to individual taxes or to a tax system as a whole; a year, multi-year, or lifetime. Proportional taxes maintain equal tax incidence regardless of the ability-to-pay and do not shift the incidence
  disproportionately to those with a higher or lower economic well-being.
  Flat taxes, implemented as well as proposed, usually exempt from taxation) household income below a statutorily determined level that is a function of the type and size of the household. As a result. such a flat marginal rate is consistent with a progressive average tax rate. A progressive tax is a tax imposed so that the tax rate increases as the amount subject to taxation increases. The opposite of a progressive tax is a regressive tax, where the tax rate decreases as the amount subject to taxation increases.

• Regressive Tax: Regressive tax is a system of tax where the small income earners pay higher tax rate than a higher income earner. This type of tax is regressive in nature because the lower income earner say (#50,000) will pay for example: 30% of his income while a higher income earner say (#200,000) pays 5% of his income as tax.
  Regressive tax is a quite strange concept, as it implies that the more money someone  earns the smaller fraction of it he has to pay as taxes. In that case, the 10 thousand dollars person will pay 20% of it as taxes, while the million dollars person will only pay 10%. The fraction is not fixed, but as income increases it decreases, and the curve on the graph is lower than the proportional one.
  Regressive Tax is a tax imposed in such manner that the tax rate decreases as the amount subject to taxation increases “Regressive” describes a distribution effect on income or expenditure, referring to the way the rate progresses from high to low, so that the average tax rate exceeds the marginal tax rate. In terms of individual income and wealth, a regressive tax imposes a greater burden (relative to resources) on the poor than on the rich: there is an inverse relationship between the tax rate and the taxpayer’s ability to pay, as measured by assets, consumption. or income. These taxes tend to reduce the tax burden of the people with a higher ability to pay, as they Shift the relative burden increasingly to those with a lower ability to pay 
  
  The regressivity of a particular taxcan also factor the propensity of the taxpayers to ,, engage in the taxed activity relative to their resources (the demographics of the tax base). In other words, if the activity being taxed is more likely to be carried out by the poor and less likely to be carried out by the rich, the tax may be considered regressive. To measure the effect, the income elasticity of the good being taxed as well as the income substitution effect must be considered. 
  
  The measure can be applied to individual taxes or to a tax system as a whole; a year, multi year, or lifetime. The opposite of a regressive tax is a progressive tax, in which the average tax rate increases as the amount subject to taxation increases. In between is a flat or proportional tax, where the tax is fixed as the amount subject to taxation increases.
  
  

          REGRESSIVE TAX POLICIES 

*  A tax with a cap, above which no taxes are paid. 

*  So called 'sin taxes' have also been criticized for being regressive, as they are often consumed more (or at least at a greater proportion) by the lower classes. 

For example, "people in the bottom income quintile spend a 78% larger share of their income on alcohol taxes than people in the the top quintile. Tobacco in particular is highly regressive.

• Progressive Tax System: Progressive tax is a system of tax where higher income earner will pay a higher tax rate and lower income earner will pay a lower tax rate. Tax in progressive system of tax, is pay as you earn according to principles of taxation.        A progressive tax is a tax in which the tax rate increases as the taxable amount increases. The term "progressive" refers to the way the tax rate progresses from low to high, with the result that a tax payers average tax rate is less than the person's marginal tax rate. The term can be applied to individual taxes or to a tax system as a whole; a year, multi-year, or lifetime.          Progressive taxes are imposed in an attempt to reduce the tax incidence of people with a lower ability to pay, as such taxes shift the incidence increasingly to those with a higher ability to pay. The opposite of a progressive tax is a regressive tax, where the relative tax rate or burden decreases as an individual's ability to pay increases.

Progressive taxes are so called when the fraction of income paid as taxes increases as the income increases. For example, the person earning $10,000 a year will pay only 10% of taxes, while the person earning million dollars a year will pay 20% I'd taxes. The fraction is not fixed, therefore as income increases the fraction increases, and the curve on the graph is higher than the proportional one. 

The term is frequently applied in reference to personal income taxes, in which percentage of that income in tax than do those with higher income. It can also apply to adjustments of the tax base by using tax exemptions, tax credits, or selective taxation that creates progressive distribution effects. For example, a wealthy or property tax sales tax on luxury goods, or the exemption of sales taxes on basic necessities, may be described as having progressive effects as increases the tax burden of higher income families and reduces it on lower income families.

Progressive taxation is often suggested as way to mitigate the societal ills associate with higher income inequality, but economist disagree on the tax policy's economic and long-term effects. Progressive taxation has also been positively associated with happiness, the subjective well-being of nations and citizen satisfaction with public goods, such as education and transportation. Regressive taxes are a quite strange concept, as it implies that the more money someone earns the smaller fraction of it he has to pay as taxes. In that case, the $10,000 person will pay 20% of it as taxes, while the million dollars person will only pay 10% . The fraction is not fixed,  but as income increases it decreases, and the curve on the graph is lower than the proportional one. Thus, progressive taxation fully complied with the principle of capacity to bear or ability to pay the tax. 

(a) Progressive taxes are more economical as the cost of collection does not rise when the rate of increases. 

(b) Progressive taxation has greater revenue productivity than proportional taxation. 

(c) The progressive tax system also complied with the canon of elasticity. For, a rise in income is automatically taxed at a higher rate under the system so that revenue increases with economic expansion.

(d) Progressive taxes are an engine of social improvement. The strong should assist the weak and the rich should aid the poor. This social Morale is well sustained by progressive taxation.

(e) Progressive taxation can lead to a better distribution of income and wealth. Hence, an increase in general welfare of community. According to Kaldor, the desire to reduce economic inequalities can be regarded as justification for adopting a highly progressive tax system.