RAS question
Which of the following is a regressive tax?
Correct answer: (D) GST on essential commodities.
GST on essential commodities is a regressive tax because it takes a higher share of income from lower-income groups.
Explanation
A regressive tax is one where the burden takes up a higher percentage of income for lower-income groups. The IMF describes VAT, also called GST in some countries, as a broad-based consumption tax that is ultimately borne by the final consumer. That matters for essentials: poorer households spend a larger proportion of their income on basic consumption goods, so GST on essential commodities absorbs a larger income share from them than from richer households. GST on essentials is therefore classified as regressive. Essentials are often given lower or zero GST rates because the design tries to reduce this regressive impact on those who spend most of their income on such goods.
Why the other options are wrong
- (A) Income tax with progressive slabs is not regressive because it is progressive, meaning the tax structure moves in the opposite direction.
- (B) Wealth tax is not the regressive case here because it is classified as progressive rather than a tax taking a higher income share from the poor.
- (C) Corporate tax is not the best example of a regressive tax because it is described as proportional or progressive, not as a higher burden on lower-income consumers.
Concept
This tests the Indian Economy concept of tax incidence, especially the distinction between progressive and regressive taxation. It recurs in RAS because indirect taxes such as GST are often assessed through their effect on lower-income households.