Lump-sum tax is a fixed amount of tax payable by everyone without considering their income levels. This tax deduction is not influenced by the different income levels of individuals, ownership of property, lifestyle or how they spend. This article gives you a detailed account of lump-sum tax.
Forms of lump-sum tax
Lump-sum tax is considered a regression tax because the poor pays more tax in proportion to their income as compared to high income earners.
Common forms of fixed tax are: Personal property tax
This is charged on personal property owners such as cars and equipment, regardless of the individual’s ability to pay or income level. Real estate tax
This tax is based on per unit or per lot, thus enforces real property owners to contribute a fixed tax amount. Poll tax It is payable by all adult residents or voters, without considering their affordability and source of their income.
Who pays for lump-sum tax?
This tax is payable by all citizens, despite of their wealth, income and paying abilities. All adult residents who get their income through salaries, remunerations, lump-sum investments, gratuities, lump-sum retirement, lump-sum pension, income from lump-sum death benefits and property owners are subject to this tax.
It is a source of income for treasury to finance government expenditure like infrastructure development. Lump-sum tax is easy to calculate, easy to account for and everyone pays a flat amount. It alleviates discrimination and creates transparency among citizens against economic development by removing the moral dilemma of other people having to pay more tax for the same service offered like the use of basic government infrastructure.
Lump-sum tax payment protects private information for individuals such as
lifestyle, wealth and income because it is applied blindly. It also reduces governement costs which are related to tax compliance.
Lump-sum tax does not take into account the various income levels and equity, thus in principle, the lower income earners actually pay a high proportion of their income to tax, as compared to high income earners. It does not consider the ability of individuals to pay. This will result in a wealth gap among citizens, as the poor becomes poorer. Fixed tax is simply based on existence and ownership, and does not consider other factors like affordability.