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Economics · Oct / Nov 2019 · Paper 12 · Question 16

2281Fiscal policy

Why are indirect taxes, such as VAT of 20% on goods and services, described as regressive when comparing high-income and low-income purchasers?

  1. AHigh-income purchasers pay a higher percentage of their income in tax.
  2. BHigh-income purchasers pay a lower percentage of their income in tax.
  3. CLow-income purchasers pay a lower percentage of their income in tax.
  4. DLow-income purchasers and high-income purchasers pay the same percentage of their income in tax.

As printed in the paper

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Correct answer: B. High-income purchasers pay a lower percentage of their income in tax.

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