A tax system which takes lesser percentage of a tax payers income as his income increase is known as

Step 1: Analyze the question The question asks about a tax system where the percentage of income paid as tax goes down as the taxpayer's income goes up.

Step 2: Explain the concept Taxes are classified by how the tax rate changes with income:

• Progressive tax: the percentage rises as income rises (the rich pay a higher rate). Example: PAYE (personal income tax) in Nigeria.
• Proportional tax: the percentage stays the same at every income level (flat rate).
• Regressive tax: the percentage falls as income rises, so low-income earners bear a heavier burden relative to their income.

Direct and indirect taxes are classified differently, by who bears the tax. Direct taxes are paid straight from income or wealth (e.g., income tax). Indirect taxes are charged on goods and services (e.g., VAT). They do not describe how the rate changes with income.

Step 3: Apply to the question Suppose a tax takes:

• ₦10,000 from a ₦50,000 income, which is 20%
• ₦10,000 from a ₦100,000 income, which is 10%

The percentage falls as income rises. This is a regressive tax.

Step 4: Identify the answer The correct option is E. regressive tax.

Tip: Think of the words as directions. Progressive means the rate goes up with income, regressive means it goes down (as in "regress," or move backward), and proportional means it stays the same. In exams, look for the phrase "lesser percentage" or "smaller proportion," which signals regressive.