VAT as a Regressive Consumption Tax

Steps:

• Identify VAT as an indirect tax applied at a flat 20% rate on purchases.
• Note that the same product incurs the same tax amount for all buyers, regardless of income.
• Recognize that low-income individuals spend a larger share of income on consumption, making the tax burden higher relative to their earnings.
• Classify based on income impact: flat-rate sales taxes disproportionately affect lower earners.

Why D is correct:

• Regressive taxes impose a greater percentage of income on low-income groups; VAT fits as consumption represents a bigger income share for the poor, per economic definitions.

Why the others are wrong:

• A: Direct taxes target income or wealth (e.g., income tax), not purchases like VAT.
• B: Progressive taxes increase rates with income levels, unlike VAT's flat 20%.
• C: Proportional taxes take the same income percentage from all; VAT's flat rate on spending burdens low earners more.

Final answer: D