All taxes, which are characterized by the dynamics of a rate reduction with an ongoing increase in the amount of income taxed by this tax, are classified as regressive. This is a fairly large group of taxes, it includes all indirect taxes. Therefore, a regressive tax as a form of indirect tax is established in the form of an addition to the price of marketable products or the tariffs at which work was performed or services were provided. This parameter is the main thing that distinguishes a regressive tax, like all indirect taxes, from direct taxes.
The mechanism for levying such taxes is that the primary tax collector here is not the state, as such, but the owner of the enterprise or company that produced products or rendered services. After completion of the production process, the company sells products at certain prices or tariffs, which include a premium (VAT, for example). The company receives revenue from sales of products and, based on its size, pays tax to the state. A mechanism works under which the owner, as already mentioned, acts as a collector, and the buyer as a taxpayer. In addition, with such a mechanism, the tax is, as it were, masked from a single person; he cannot know its exact value.
In economics, a regressive tax can be paid in the following forms:
- value added tax (VAT). This value is added to the value of the goods at all stages of its production and sale process. This regressive tax is levied as the product passes through the stages of the production process and the sales process until it reaches the final buyer;
- excise tax. Such a tax is mainly intended to be established with respect to articles of mass demand (food products, tobacco products, items of sanitation and hygiene, etc.). Excise taxes include payments for utility and other common types of services to the population;
- the customs duty is the same as the excise tax, only in respect of goods that are imported from abroad;
- environmental tax (collection) is a kind of indirect tax that is levied for activities related to the risks of damage to the environment.
It is generally accepted that regressive tax systems most worsen the financial situation of the poor. That is why the audit of income tax is becoming especially important in ensuring the principles of social justice. Its main goal is to verify the compliance of the values and rules for calculating tax at any enterprise with the requirements of the law, namely, Ch. 25 of the Tax Code. The content of the audit includes verification of:
- all types of accounting for the calculation of this tax;
- clarification of amounts that may not be taken into account when calculating tax;
- formation of the tax base;
- financial statements with regard to this tax;
- classification and detailing of information about all tax liabilities, including unpaid taxes;
- procedures for paying tax to the budget.
In order to somehow mitigate the harsh impact of the regressive system on the most vulnerable groups of the population and bring its essence closer to the principles of social justice, proportional schemes of its calculation are applied. This is applied in accordance with the principle of “marginalism” - the theory of the Austrian economist Karl Menger, which states that any remaining amount of money from the poor is always more valuable to him than the same amount to the rich.
The mechanism of such proportional calculation is that the final tax rate is set in accordance with a specific amount of profit. It should be noted that the proportional principle does not completely eliminate the negative influence. This is especially true of excise taxes as the most regressive variety of indirect taxes. Therefore, they use a restrictive approach, that is, the average and marginal rates are set. However, not everything is solved here either, since it is not possible to apply the principle of proportionality and the principle of limiting rates at the same time. The fact is that with this approach, these rates are automatically equalized.