Merits and Demerits of Proportional Tax:

The principle of equality in tax levy can be secured by taxing all taxpayers at a uniform equal rate. This is known as proportional tax. Whatever the level of income or any other bases of taxation, the rate of tax remains a single uniform rate under proportional tax.

There are some people who recommend the imposition of proportional rate of tax on the following grounds:

Firstly, a proportional tax is simple, easy to understand and easy to calculate as a uniform rate is charged.

Secondly, under proportional tax, the relative economic status of all taxpayers remains unchanged because all pay tax at a uniform rate regardless of their incomes.


Thirdly, proportional tax does not have any serious or adverse effects on the incentive to work and save of the taxpayers.

But proportional tax has a large number of disadvantages. Following are the main:

Firstly, proportional tax does not satisfy the canon of equality and justice since the burden of this tax falls heavily on the poor persons. Both the rich and the poor pay the same rate of tax. Thus, poor people sacrifice more than the rich though they have lower incomes.

Secondly, proportional taxation cannot bring social justice. It widens inequality in the distribution of income and wealth as the burden of this tax is borne mostly by the poor people.


Thirdly, it is inelastic and, therefore, less productive. In other words, proportional tax contributes little to the state exchequer.

In conclusion, we must say that between these two tax rates, progressive rate of taxation is the most popular one although few people advocate proportional taxation. However, regressive and digressive taxations are not recommended in any country of the world.