ACCA BT Chapter 18 – Macroeconomics – Questions
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Question 3, asked ChatGPT the question, it gives me proportional tax. which is initially my answer. Can u explain why the answer is regressive tax.
It’s like VAT eg a 20% charge on purchases.
Proportional/regressive/progressive relate to taxpayers’ wealth. So, a 20% tax on food is regressive because the tax paid to buy food necessary for life is a bigger proportion of a low income person’s income than that of a person with high income. Obviously, a rich person could choose to buy caviar regularly and would pay more tax for that, but that doesn’t help the poor to live.
We all need heating for survival (unless you are in somewhere tropical) and a 10% tax on the gas needed to heat your home is a bigger proportion of low income family’s income than that of a rich person ;iving in the same sized accommodation.
why is tax charged on domestic heating considered regressive? Dont high income individual use heating too, making it a proportional tax?
there is an inverse relationship between income and regressive tax, the greater your salary the less RTAX you pay, vice versa. its similar to total fixed cost and level of output produced.
Yes. It is charged as a % of value not of units
Yes. it is a % of the value not the units.
what is volorem tax?
An “ad valorem tax” is charged as a fixed percentage of the price of goods. A good example is value added tax.
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An ad valorem tax is related to value and ‘false’ is marked as the correct response.
On q6 why is false incorrect?
It is charged as a fixed percentage
It is charged as a % of value not as an amount per unit.