useful for Finance Graduates and Undergraduates!

1. Principle of Ability to Pay &
Progressive Taxation (In Nepal)
PRESENTER : MR. MILAN REGMI
NATIONAL COLLEGE

2. Principle of Ability to Pay
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 It’s a concept of Economics that says that “those who
have more resources (wealth), or earn higher incomes,
should pay more taxes”.
 The ability to pay taxes are used as means of income
redistribution. (such as income tax or tax on luxury
goods)
 Under the ability-to-pay principle, tax burdens should
be related not to what taxpayers receive from
government, but rather to their ability to bear the tax
burden—that is, to tolerate a sacrifice(threshold to bear
the burden of Tax).
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3. Illustration
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 For instance, An idea of paying a dollar is a lesser
sacrifice for a well-to-do person than for a poor
person.
 An equal sacrifice requires higher tax payments
from the well-to-do person.
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5. But the difficulty is to determine how this
ability to pay can best be measured?
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 mainly depends on the concept 'ability to pay'.
 Should it be in respect of
 Property,
 Income or Expenditure?
 Some Tests are discussed further !!
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6. If measured on the basis of property!
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 Some economists argue that , If a tax is imposed
according to the property that a person possesses, it
will be equitable. But property is not a correct index
of a person's ability to pay.
 But why ? CHECK OUT THIS !!
 One person may possess one dozen houses from each
of which he gets a monthly rent of Rs. 100, whereas
another person may have one centrally situated
building from which he may be getting Rs. 1500 as
rent.
 Hence, we cannot be merely guided by the extent of a
man's property while imposing a tax.
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7. If measured on the basis of Expenditure !
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 It is often argued that, if a man is able to spend a
very large amount, he must be in a position to pay a
very high tax. This is a wrong conclusion.
 Why ???? Again !!!
 A man may have to spend a large amount of money
because he has a large number of dependants.
 Expenditure, therefore, as an indicator of a person's
ability to pay must be rejected.
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8. The Best Test : INCOME
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 Because , what ever amount of Tax s/he pays
is out of their INCOME.
 There’s no other alternative.
 The tax system as a whole should be a just
one.
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9. Progressive Taxiation
Progressive
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10. Types of Tax Rates
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11. Progressive Taxiation
 A progressive tax structure is one in which an individual or
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family's tax liability as a fraction of income rises with income.
If, for example, taxes for a family with an income of
Rs. 20,000 are 20 percent of income and taxes for a
family with an income of Rs. 200,000 are 30 percent
of income, then the tax structure over that range of
incomes is progressive.
One tax structure is more progressive than another if
its average tax rate rises more rapidly with income.
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12. Nepal Income Tax Rates for: Individuals
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Income (Rs.) Tax Rate
0 - 160,000 1%
160,001 - 260,000 15% (+ Rs. 1,600)
Above Rs. 260,000 25% (+ Rs. 16,600)
Tax rate for Married
Income Tax Rate
0 - 200,000 1%
200,001 - 300,000 15% (+ Rs. 2,000)
Above Rs. 300,000 25% (+ Rs. 17,000)
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13. Why It Matters?
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 A progressive tax is one of many systems governments
use to raise revenue.
The idea of a progressive tax has always been debated.
Backers of a progressive tax argue that people with higher
incomes can more easily afford a higher tax burden.
 Opponents tend to claim that it punishes high earners for
their success and eliminates monetary incentives for
workers wanting to increase their income level.
Taxation is one of the most widely (and heatedly) debated
topics out there, with many people arguing for and
against certain systems. The progressive tax is no
exception.
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14. Federal Income Tax Brackets
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15. Thank you !
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