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Taxation is the lawful extraction of money from citizens and organizations to be used in running the affairs of the state. The formula for taking taxes is based upon the description of the tax base, the rate structure and the identity of the legal taxpayer. Tax assessment can be carried out in cash or kind and the tax liability is identified by the distinctiveness of its bases such as the income derived from a product or service. The dominant practice, however, in the contemporary world is the assessment of taxes in money and the settlement of the tax liability by the payment of money.
Taxes are classified upon certain apparent effects of various taxes which may be ‘direct’ or ‘indirect’ taxes. A direct tax is one in which the legal taxpayer cannot shift the tax responsibility to other people such as customers or vendors. Taxes on the sale of commodities, import duties, license fees and other such liabilities come under the nomenclature of indirect taxes. Proportional Tax is the tax where every person, irrespective of his/her income pays the same percentage in taxes. For the payment of ‘Proportional Tax’, marginal and average tax rates are the same and are calculated accordingly. The flat tax rate is applicable to individual taxes or to a tax system as a whole: a year, multi-year or even an entire lifetime.
Proportional taxes uphold ‘tax incidence’ without shifting the occurrence unreasonable to people with a higher or lower income. For instance, a product was taxed at 8% which means that whoever bought the product would have the pay the 8% irrespective of the fact that he/she was rich or poor. Progressive Tax percentage of their income in taxes that people with higher income. Progressive taxes are taxes where the marginal tax rate is greater than the average tax rate. Progressive income tax systems maintain a partial equilibrium on other tax systems that might be regressive in nature.
A good example of regressive taxation is an excise tax on cars because lower income people spend a larger percent of their income on cars and therefore the tax on their cars. People in the lower income bracket also spend a large percentage of their earnings on necessities such as food and clothes. Therefore a sales tax on these items would be regressive taxation. That is the reason that taxes for uncooked foods is exempt from sales so that lower income people are not burdened by the sales tax for their necessities.

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