Which type of tax system is most suitable for reducing economic inequalities in a country like India, by placing a relatively higher tax burden on higher income groups?

Introduction / Context:
One of the key roles of a modern tax system is not only to raise revenue but also to influence the distribution of income and wealth in society. In a country like India, where income and wealth inequalities can be substantial, the structure of taxation can either reduce or worsen these inequalities. This question asks which type of tax system helps to reduce economic inequalities by placing a relatively greater burden on those who can afford to pay more, thereby supporting redistributive goals and social justice.

Given Data / Assumptions:

• The objective is to reduce economic inequalities, especially between rich and poor.
• We are comparing standard tax structures: regressive, progressive, and flat rate (proportional).
• We assume taxes are mainly on income or wealth where the rate can change with the level of income.
• We use standard textbook definitions of these tax types from public finance.

Concept / Approach:
A progressive tax system is one where the tax rate increases as income increases. This means higher income individuals pay a higher percentage of their income in taxes compared to those with lower incomes. By design, this structure can reduce income inequality by redistributing resources through public spending on welfare, education, health, and infrastructure. In contrast, a regressive tax system imposes a higher effective rate on poor households, aggravating inequality. A flat rate or proportional tax charges the same rate to everyone, which does not specifically target inequality. Therefore, to reduce inequalities, a progressive tax is the most appropriate choice.

Step-by-Step Solution:
Step 1: Recall that the goal is explicitly to reduce economic inequalities in India.Step 2: Examine the nature of a progressive tax, where the marginal tax rate rises with income so that higher income groups contribute a larger proportion of their income.Step 3: Recognise that this structure allows the government to collect more resources from those with greater capacity to pay and to finance social and developmental programmes that benefit poorer groups.Step 4: Understand that a regressive tax does the opposite, placing a heavier proportional burden on the poor, which tends to worsen inequality rather than reduce it.Step 5: Note that a flat rate tax simply maintains the same percentage for all incomes, so it does not actively reduce inequality unless combined with strong spending policies.Step 6: Since the question asks which system will help to reduce inequalities, the tax structure must be explicitly redistributive.Step 7: Therefore, a progressive tax system is the best answer.

Verification / Alternative check:
Think of two individuals, one with low income and one with high income. In a progressive tax system, the low income person might pay 5 percent of income in tax, while the high income person might pay 25 percent. This allows more net income to be retained by the poorer person in relative terms. The extra revenue from high income groups can be used to provide subsidies, welfare schemes, and public services that disproportionately support low and middle income households. This pattern is consistent with efforts to narrow income gaps. Therefore, from both definition and practical effect, progressive taxation is associated with reducing inequality.

Why Other Options Are Wrong:
Regressive tax is wrong because it makes poorer people pay a higher fraction of their income, increasing inequality. A flat rate tax (proportional tax) may be simple and transparent, but it does not, by itself, shift the relative burden towards richer groups; everyone pays the same percentage. Option D, None of these, is incorrect because progressive taxation is widely recognised in public finance as a tool for redistribution. Thus, only the progressive tax system clearly matches the aim of reducing economic inequalities.

Common Pitfalls:
One pitfall is to assume that any tax that collects more money from wealthy people is automatically progressive. What matters is the rate in percentage terms relative to income. Another confusion is mixing up proportional and progressive systems, because both can appear to charge more rupees to the rich, but only the progressive system increases the percentage rate with income. It is also important to distinguish between the tax structure and how the government spends its revenue; both influence inequality, but the question here is specifically about the nature of the tax system itself.

Final Answer:
The tax system that helps to reduce economic inequalities in India is a Progressive tax system.