Progressive and Regressive Taxes 1. Progressive Tax


A progressive tax takes a higher percentage of a person's income from people with higher incomes.


2. Regressive Tax


A regressive tax takes a higher percentage of a person’s income from people on lower incomes.


Everyone pays the same rate, so it takes a larger share of a lower earner’s income.


Examples: Examples:


PAYE, Corporation Tax


VAT, Excise Duties, Sugar Tax, Customs Duties


Income tax (PAYE) is a progressive tax. As employees earn more income, they will pay a higher rate of PAYE once they earn over a certain amount of income. In 2026, any income earned up to €44,000 was taxed at a rate of 20%. All income earned above €44,000 was taxed at the higher rate of 40%. Therefore higher income earners end up paying a higher proportion of tax from their income.


This is shown in the chart above where an employee earning €40,000 in 2026 will have 16% of their income deducted in tax. An employee earning €80,000 will have 31% of their income deducted in tax.


Value Added Tax (VAT) is a regressive tax. Everyone pays the same amount of VAT when they purchase a good or service, regardless of their income level. Therefore if someone on a higher income and someone on a lower income both purchased a cinema ticket that includes VAT, the person on the lower income would end up paying a larger share of their income in tax for the ticket.


352 2


STRAND 3


CHAPTER 31:


The purpose of taxation


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