Taxation (Solution)

Solution 1:
Some may feel that a flat tax rate is fairer because everyone pays the same percentage of their income as taxes. However, in most countries, most of its citizens are actually earning below average. These people need more government assistance. Hence, it makes more sense for the government to offer these lower-income group a lower tax rate , which will please them more (political reason). At the same time, the difference in tax rate (between flat tax rate & progressive tax rate) on these lower-income group is quite insignificant as compared to the overall revenue of the Government.



Solution 2:
The reason is that there are other factors to consider other than just maximising revenue for the Government. One main consideration is the economy growth of the country. People are normally most productive when they get to keep more of their income (i.e. low tax rate).



Hence, it is important to strike a balance where the Government can get more revenue and; at the same time, the economic growth of the country is high as well.

Another possible reason would be to prepare for the future (e.g. worst possible scenario). Suppose due to unforeseen circumstances, the Government needs more revenue and has to increase the tax rate. If we are already at 33% tax rate, any further increase in tax rate will actually result in a lower revenue, which will not improve the situation but worsen it. Hence, it will be wiser to have a tax rate lesser than 33%, so that there is still room for it to be increased and eventually get more revenue.