The table below shows the incomes and rates of income tax levied on four professionals in an economy. Profession Income per month($) Tax rate % Disposable i...

Answer Details

(a) Disposable income is income after tax: \( \text{Disposable income} = \text{Income} - \text{Tax}, \) where \( \text{Tax} = \text{Tax rate} \times \text{Income} \).

(b) The system used is regressive taxation.

(c) Reasons. Under a regressive tax the tax rate falls as income rises. Here the highest earner (Doctor, \$8,000) pays the lowest rate (10%), while the lowest earner (Civil servant, \$5,000) pays the highest rate (18%). The tax therefore takes a larger proportion of a poor person's income than of a rich person's, which is the defining feature of a regressive tax.

(d) Diagram. Plot income on the horizontal axis and the average tax rate on the vertical axis. A regressive tax curve slopes downward from left to right: as income increases, the tax rate declines (from 18% at \$5,000 down to 10% at \$8,000). This contrasts with a progressive tax, whose curve would slope upward. The downward slope visually shows the burden shifting onto lower income earners.