Advantages and Disadvantages of Proportional Taxation

Proportional taxation refers to that system of taxation in which the tax rate is uniform for all the taxpayers, so under this system, whether one is rich or poor he or she has to pay the tax at the same rate. In order to understand about this system of taxation let’s look at some of the advantages and disadvantages of proportional tax –

Advantages of Proportional Taxation

  1. The first and foremost advantage of proportional tax is that since all people pay taxes at the same rate there is no ambiguity as to rate of taxation which in itself lead to clarity in the minds of taxpayers as well as tax collecting authorities because when it comes to taxes majority of people do not understand the tax rates as there are many slabs and exemption related to those slabs and therefore a clarity with regard to rate of taxation makes life easy for tax paying people.
  2. Another benefit of proportional tax is that it reduces the tax theft from rich sections of society because when tax rate are high for rich and low for middle and poor section than it is the rich who try all the ways so that they don’t have to pay taxes and hence in a way proportional tax leads to less tax leakage from the system.
  3. Another merit of proportional tax is that it simple to understand by both tax authorities as well as tax paying individual which in turn lead to better implementation by the tax authorities and acceptance by tax paying individuals.

Disadvantages of Proportional Taxation

  1. The biggest drawback of proportional tax is that large section of the society that is middle and lower class feel cheated because according to them those who have more money should also pay more tax and those who have less money should pay less tax but since this system keeps tax rate same for all there is frustration and anger among majority of people in the country as middle and poor class people form 99 percent of the population of any country.
  2. Another demerit of proportional tax is that since rich and poor are taxed at the same rate it leads to a huge gap between the rich and poor leading to anger, frustration and in the worst case scenario may even lead to the revolt by middle and poor class against affluent people and government of the country.
  3. Another disadvantage of proportional tax is that government receives less tax than another form of tax system because tax rate has to be kept low so as to appease poor and middle class which in turn lead to the lower tax rate for rich also leading to loss of revenue for the government of the country.

As one can see from the above that proportional tax has advantages, as well as disadvantages and government, should carefully consider above points before implementing the proportional taxation system in the country.


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