If Mr. A earns N2.000 a year while Mr. B earns N8000 but Mr. A pays N200 in tax per annum while Mr. B pays N400, such tax is_______

Analyze the question

We are asked to classify a tax system from how the tax paid compares with income. The figure "N2.000" is most likely a typo for N2,000.

Concept

The type of tax depends on the percentage of income paid as tax, not the naira amount:

• Progressive tax: the rate rises as income rises (the rich pay a higher percentage).
• Proportional tax: the rate stays the same at all income levels.
• Regressive tax: the rate falls as income rises (the rich pay a lower percentage).
• Indirect tax: levied on goods and services (e.g. VAT), not directly on income.

Solution

Mr. A: Tax rate = (200 / 2,000) × 100 = 10%

Mr. B: Tax rate = (400 / 8,000) × 100 = 5%

Mr. B earns more but pays a lower percentage of his income in tax (5% against 10%). The rate falls as income rises, so the tax is regressive.

Mr. B does pay more in naira (N400 against N200), which might tempt you to pick "progressive". But that is a trap, because progressive taxation is judged by the rate, not the absolute amount.

Answer: D. Regressive

Exam tip

Always convert the tax into a percentage of income: (Tax ÷ Income) × 100. Then compare:

• Percentage goes up → Progressive
• Percentage stays the same → Proportional
• Percentage goes down → Regressive