Joshua Adrian S.

Cericos

Danica Mae Lofranco

JD-3

Progressive System of Taxation vs. Regressive System of Taxation

According to Lumen, a progressive tax is a tax in which the tax rate increases as the
taxable base amount increases. The term “progressive” describes a distribution effect on
income or expenditure, referring to the way the rate progresses from low to high, where the
average tax rate is less than the marginal tax rate. Progressive taxes are imposed in an attempt
to reduce the tax incidence of people with a lower ability-to-pay, as such taxes shift the
incidence increasingly to those with a higher ability-to-pay. The opposite of a progressive tax is
a regressive tax, where the relative tax rate or burden increases as an individual’s ability to pay
it decreases. “Regressive” describes a distribution effect on income or expenditure, referring to
the way the rate progresses from high to low, where the average tax rate exceeds the marginal
tax rate. In terms of individual income and wealth, a regressive tax imposes a greater burden on
the poor than on the rich, there is an inverse relationship between the tax rate and the
taxpayer’s ability to pay as measured by assets, consumption, or income1.

However, although their concepts are the quite the same, regressive and progressive
system of taxation must not be confused with the regressive and progressive tax. Regressive
system of taxation exists when there are more indirect taxes than direct taxes. In such case, the
low income sector of the population as a whole buys more consumption goods on which the
indirect taxes are collected, the burden of indirect taxes rests more on them than on the more
affluent groups.2 In its general term, low-income individuals pay a higher amount of their
incomes in taxes compared to high-income earners. In contrast, taxes assessed under a
progressive system are based on the taxable amount of an individual's income. They follow an
accelerating schedule, so high-income earners pay more than low-income earners. Tax rate,
along with tax liability, increases as an individual's wealth increases. The overall outcome is that
higher earners pay a higher percentage of taxes and more money in taxes than do lower-

1
Lumen. Boundless Economics. 812 SW Washington St. Suite 1200 Portland, OR 97205
2
The Fundamental of Taxation (2004 Ed.) Hector S. de Leon and Hector M. de Leon, Jr., p. 20.
income earners. This sort of system is meant to affect higher-income people more than low- or
middle-class earners to reflect the presumption that they can afford to pay more.

According to Julia Cagan (2020), regressive tax system is more common in less
developed countries, where there may be a greater number of people in the same income
bracket, thus reducing the negative impact of the regressive tax. 3It is very evident that a
progressive system of taxation is way better than a regressive system of taxation. Also,
according to Kimberly Amadeo (2020), Taxes are regressive when they impose a harsher
burden on the poor than on the rich. In poor families, a larger proportion of their income pays for
shelter, food, and transportation. Any tax decreases their ability to afford these basics. The
wealthy, on the other hand, can afford the basics. Taxes decrease their ability to invest
in stocks, add to retirement savings, or purchase luxury items. It may affect their standard of
living but won't deprive them of essentials. 4

In a setting like in Philippines wherein the poverty rate is of 19.8% as stated by the
World Bank, we believe that the better system is the Progressive Tax System because it allows
those who have higher salaries to pay higher taxes than those who have less. Supporters of this
system claimed that this is the fairest system because it lessens the tax burden of the poor. It is
not about initiating reform, but rather an attempt to ensure taxation is “fair” to all payers. In this
way, those who have more in life will have to pay more while those who have less will have to
pay less. The same shall have a lesser impact to those who are more capable of paying than
those who do not even have foods on their table to eat. Incidentally, the constitutional provision
that the Congress shall evolve a “Progressive System of Taxation” has been ruled by the
Supreme Court as merely permissive and not mandatory. 5

3
Cagan J., (2020). Regressive Tax. 1500 Broadway, New York, NY 10036.

4
Amadeo K.,(2020). Regressive Tax with Examples. 500 Broadway, New York, NY 10036 | 212-204-4000.
5
Philippine Airlines Inc. vs. Secretary of Finance, et al, GR. NO. 115852