In public finance and economics, what do we call a system of taxation under which poorer sections of society are taxed at higher rates than richer sections?

Introduction / Context:
Taxation systems are designed not only to raise revenue for the government but also to influence income distribution and economic behaviour. Different tax structures place different burdens on people with different income levels. This question focuses on the classification of taxes based on how the tax rate changes as income increases or decreases. Understanding these terms is fundamental in public finance, especially when discussing equity, fairness, and redistribution through the fiscal system.

Given Data / Assumptions:

• The question describes a system where poorer sections are taxed at higher rates than richer sections.
• The comparison is based on tax rates relative to income, not just total tax paid.
• Standard definitions of progressive, proportional, regressive, and degressive taxation are assumed from basic public finance.
• We assume income is the main tax base being considered.

Concept / Approach:
A progressive tax is one where the tax rate increases as income increases, so high income people face higher tax rates. A proportional tax, sometimes called a flat tax, is one where the tax rate is constant for all income levels. A regressive tax is one where the tax rate decreases as income increases, meaning that low income individuals effectively pay a higher proportion of their income in tax compared to high income individuals. A degressive tax is one where the tax rate increases up to a certain income level and then becomes constant or falls. We need to match the description in the question with these standard definitions to identify the correct term.

Step-by-Step Solution:
Step 1: Focus on the key phrase in the question: poorer sections are taxed at higher rates than richer sections.Step 2: In such a system, as income rises, the effective tax rate falls. This means that the tax structure places a heavier burden on low income groups compared to high income groups.Step 3: A progressive tax does the opposite, charging higher rates on higher incomes, so it cannot match the description.Step 4: A proportional tax charges the same percentage rate at all income levels, so it does not specifically place higher rates on the poor.Step 5: A regressive tax is defined as one where the tax rate decreases as income increases, so low income individuals face higher effective tax rates than wealthy individuals, which fits the description.Step 6: A degressive tax has a rising rate up to a point and then a constant or lower rate, but it is not defined primarily by consistently higher rates on the poor across the income range.Step 7: Therefore, the system described in the question corresponds to a regressive tax.

Verification / Alternative check:
We can test the logic with a simple numerical example. Suppose a poor person earns Rs 10,000 and pays tax of Rs 1000, so the rate is 10 percent. A richer person earns Rs 1,00,000 and pays Rs 5000 in tax, so the rate is 5 percent. The poor person is paying a higher proportion of income in tax. This pattern, where the tax rate falls as income rises, is the hallmark of a regressive tax structure. This confirms that the description in the question matches the definition of a regressive tax.

Why Other Options Are Wrong:
Progressive tax is wrong because in a progressive system, tax rates rise with income, protecting poorer sections. Proportional tax is incorrect because the rate is constant for all income levels, so the poor and rich pay the same proportion. Degressive tax does not systematically impose higher rates on the poor; it changes the rate only up to a certain threshold and then stabilises. Only the regressive tax clearly describes a system in which poorer sections are taxed at higher effective rates than richer groups.

Common Pitfalls:
A common confusion is between regressive and degressive taxation, because both involve some non progressive structure. Learners also sometimes focus only on absolute tax amounts rather than the percentage of income. It is important to remember that these terms refer to how the tax rate behaves relative to income, not just how many rupees someone pays. Another pitfall is interpreting any tax that feels unfair as regressive, even when the actual rate structure may be proportional or progressive. Clear attention to the definition in terms of the marginal or average rate is necessary.

Final Answer:
The system of taxation under which poorer sections are taxed at higher rates than richer sections is called a Regressive tax.