Which type of tax applies the same rate to all income levels so that the tax rate does not change as income rises or falls?

Introduction / Context:
This question is about the classification of taxes based on how the tax rate changes with income. Tax systems can be progressive, proportional, or regressive. Understanding the differences between these categories is important for public finance, Indian economy, and general studies, because exam questions often ask you to match definitions to these terms or to evaluate their effects on equity and efficiency.

Given Data / Assumptions:

• The key phrase in the question is same rate for all income levels.
• We assume that the tax is expressed as a percentage of income.
• Options mention progressive income tax, proportional tax, regressive tax, service tax, and lump sum tax.
• The correct choice must reflect a constant tax rate regardless of income size.

Concept / Approach:
A proportional tax system is one in which the tax rate is constant at all income levels. If the rate is 10 percent, then a person earning 1,00,000 units of currency pays 10,000, and a person earning 2,00,000 pays 20,000. The share of income paid in tax remains the same. In a progressive tax, the rate increases as income rises, while in a regressive tax, the average tax rate falls as income increases. Service tax is a category defined by the nature of the transaction, not by the pattern of rates across income levels. A lump sum tax is the same absolute amount for everyone, which implies that the effective rate falls as income rises and is therefore regressive, not proportional.

Step-by-Step Solution:
Step 1: Focus on the phrase uses the same rate for all income levels.Step 2: Recognise that this describes a constant percentage, which is the definition of a proportional tax.Step 3: A progressive income tax cannot be correct because in that case the rate rises with income.Step 4: A regressive tax or lump sum tax leads to a declining average tax rate as income increases.Step 5: Service tax is not defined by how the rate varies with income, but rather by type of service and transaction.Step 6: Therefore, the correct answer is the option that clearly names a proportional tax.

Verification / Alternative check:
Consider a simple schedule. Under a proportional tax of 20 percent, someone who earns 50,000 pays 10,000 and someone who earns 1,00,000 pays 20,000. In both cases the tax rate is 20 percent. Under a progressive tax system, the second person might face a rate of 30 percent instead, paying 30,000. Under a lump sum tax of 5,000, the person with 50,000 income pays 10 percent, while the person with 1,00,000 pays only 5 percent, which is regressive. These examples show that only the proportional tax keeps the same rate for all income levels.

Why Other Options Are Wrong:
Option A, a progressive income tax, involves higher marginal tax rates at higher income brackets and is designed to achieve more redistribution, not constant rates. Option C refers to regressive taxes such as some sales taxes where poorer households spend a larger share of income on taxable goods, resulting in a higher average tax rate. Option D, service tax, can be implemented with many structures and does not inherently guarantee the same rate for all incomes. Option E, a lump sum tax, applies the same amount to everyone, so the effective rate declines as income rises and therefore does not fit the description in the question.

Common Pitfalls:
Students sometimes confuse proportional and progressive because both may charge higher absolute amounts of tax to richer households. The difference lies in whether the percentage rate rises or stays constant. Another pitfall is to assume that any tax with the same absolute amount for everyone is fair and therefore proportional, but from a technical point of view, such a tax is regressive because it takes a larger share from lower incomes. To avoid errors, always relate proportional tax to a constant percentage rate, regardless of income level.

Final Answer:
The tax that uses the same rate for all income levels is a proportional tax that uses a constant percentage rate on all income levels.