Not all countries of the world adopt the flat tax system, many nations opted for a progressive tax system as a better alternative for a flat tax system. According to the critics of flat tax systems, a progressive tax system is a better option. While the wealthy enjoy low tax rates, low income earners aso pay the same tax as the wealthy mounting a burden on them. There are some criticisms against flat tax systems, the major criticism is that it is not fair to individuals who earn low-income. However, some flat tax systems have been politically influenced to cater for tax exemptions and deductions, an example is the flat tax system proposed by Ted Cruz and Rand Paul. An ideal flat tax system gives no tax deductions or exemptions to taxpayers. Generally, income generated from dividends, capital gains, distributions and others are not tax under the flat tax system.īack to : Accounting & Taxation How Does a Flat Tax Work?Ī flat tax system enhance more earning by taxpayers, especially those who have higher income because they are taxed equally as other taxpayers. An ideal flat tax system maintains a proportional and constant tax rate regardless of changes in the income of taxpayers. Tax deductions and tax exemptions are not allowed in a flat tax system. A flat tax system maintains equal tax rate on all taxpayers regardless of their income. An income tax system in which all individuals (taxpayers) pay the same tax amount without giving regard to the divergence of their income is a flat tax system.

Flat tax vs progressive tax