To determine the type of taxation represented in the table showing the yearly income and respective tax rates of four companies, we need to carefully analyze how these tax rates change as income increases. Here is a step-by-step breakdown:
1. Understanding Income and Tax Rates for Each Company:
- Company A: Income = \[tex]$50 million, Tax Rate = 20%
- Company B: Income = \$[/tex]100 million, Tax Rate = 15%
- Company C: Income = \[tex]$150 million, Tax Rate = 12%
- Company D: Income = \$[/tex]200 million, Tax Rate = 10%
2. Analyzing the Trend:
Let’s observe the tax rates as the income increases:
- From Company A to Company B: The income increases from \[tex]$50 million to \$[/tex]100 million, and the tax rate decreases from 20% to 15%.
- From Company B to Company C: The income increases from \[tex]$100 million to \$[/tex]150 million, and the tax rate decreases from 15% to 12%.
- From Company C to Company D: The income increases from \[tex]$150 million to \$[/tex]200 million, and the tax rate decreases from 12% to 10%.
3. Identifying the Taxation Type:
We have four options to categorize the type of taxation:
- A. Indirect: Indirect taxes are levied on goods and services rather than on income or profits, and this does not apply here as we are dealing with income tax.
- B. Proportional: A proportional tax system implies that the tax rate remains constant regardless of the amount of income. This is not the case here as we see tax rates decreasing with higher incomes.
- C. Progressive: A progressive tax system is characterized by increasing tax rates as the income increases. Clearly, this is not the case here as the tax rates are decreasing.
- D. Regressive: A regressive tax system is characterized by decreasing tax rates as the income increases. This matches our observations.
4. Conclusion:
The tax rates decrease as the income increases. Therefore, the tax system represented in this table is best described as a regressive tax system. The correct answer is:
D. Regressive
