WAEC Economics 2025 Theory — Question 8

Model answer

(a) A regressive tax system is one in which the rate paid as tax decreases as income increases, so that higher income earners pay a smaller portion of their income as tax while lower income earners pay a larger portion of theirs (e.g. as described for personal income tax in this system). (b) (i) Equity: the burden of taxation should be fairly distributed - those who earn more should pay more than those below them (vertical equity), and those who earn the same amount should pay the same amount of tax (horizontal equity). (ii) Certainty: both the tax collector and the taxpayer should know with certainty how much tax is to be paid and when it is due. (iii) Economy: the cost of collecting a tax should be reasonable, and should not be so high that it makes little economic sense to collect the tax. (c) Reasons government imposes tax: (i) To earn revenue - governments earn most of their revenue from taxes; (ii) To regulate the economy - tax can be used to regulate people's purchasing power and manage inflationary pressure; (iii) To redistribute income - government can use tax to redistribute income by collecting from those who have more and giving to those who have less.