A proportional tax is that tax system whose tax rate is always the same, regardless of the tax base, the same tax rate will always apply. It is the opposite of progressive tax .
These types of taxes do not establish differences depending on the level of income of people. Unlike the progressive taxes, the same percentage will always be applied to the tax base. Unlike progressive taxes, proportional taxes do not fulfill a redistribution of income function.
Proportional Tax Classes
These are the types of taxes in which the proportional system is usually established:
- Value AddedTax : Taxes the consumption of goods and services. All consumers must pay the same type of tax regardless of their income.
- Corporation Tax: Taxes the benefits of companies, individuals or legal entities.
- Property Transfer Tax:It is responsible for taxing the transfer of assets.
- Tax of Documented Legal Acts:It is responsible for taxing the formalized acts in public deeds.
Example of progressive tax versus proportional tax
In the matter of taxes it is essential to know the difference between progressive tax and proportional tax. A progressive tax is one whose tax rate increases the higher the taxpayer’s income level. On the contrary, in a proportional tax, the tax rate is always the same, regardless of the taxpayer’s income.
A clear example of proportional tax is Value Added Tax. The percentage to be applied is fixed. If a product costs 200 euros, and the tax rate is 21%, 42 euros VAT will be paid.
As an example of progressive taxes, we find the Income Tax for Individuals. The more a person earns, the greater the type of lien he must bear. If a person earns 10,000 euros, he must bear a 10% tax rate, while if he has an income of 45,000 euros he will have to face a 45% tax rate.