The table below shows the incomes and rates of... | WAEC SSCE - Economics - 2015 (Essay)

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The table below shows the incomes and rates of income tax levied on four professionals in an economy.

Profession	Income per month($)	Tax rate %	Disposable income ($)
Doctor	8,000	10
Engineer	7,000	12
Civil servant	5,000	18
Nurse	6,000	15

Use the above data to answer the questions that follows:

(a) Calculate the disposable incomes of the four individuals

(b) What system of taxtation was employed?

(d) With the aid of a diagram, explain the system of taxation employed in 2(b)

Answer

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

Profession	Income ($)	Tax rate	Tax ($)	Disposable income ($)
Doctor	8,000	10%	$0.10\times8000=800$	7,200
Engineer	7,000	12%	$0.12\times7000=840$	6,160
Civil servant	5,000	18%	$0.18\times5000=900$	4,100
Nurse	6,000	15%	$0.15\times6000=900$	5,100

(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.

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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} $.

Profession	Income ($)	Tax rate	Tax ($)	Disposable income ($)
Doctor	8,000	10%	$0.10\times8000=800$	7,200
Engineer	7,000	12%	$0.12\times7000=840$	6,160
Civil servant	5,000	18%	$0.18\times5000=900$	4,100
Nurse	6,000	15%	$0.15\times6000=900$	5,100

(b) The system used is regressive taxation.

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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...

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Profession	Income ($)	Tax rate	Tax ($)	Disposable income ($)
Doctor	8,000	10%	\(0.10\times8000=800\)	7,200
Engineer	7,000	12%	\(0.12\times7000=840\)	6,160
Civil servant	5,000	18%	\(0.18\times5000=900\)	4,100
Nurse	6,000	15%	\(0.15\times6000=900\)	5,100

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...

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