Q.7 An individual earns wage income (W) at the rate of Rs. 30.000 per month. He also owns physical assets that were worth Rs. 600,000 at the beginning of the fiscal year but now have a market value of 690.000. The individual's income tax liability is determined under a proportional tax system (with ATR = MTR 7.5%) on the basis of his net worth at the end of the fiscal year. He is also subject to paying wealth tax @ 2% per annum and a capital gains @tax 1.5% per annum. Calculate the total tax liability of the individual when the tax system allows for (a) zero inflation, and (b) 12/o inflation. On the basis of your calculations, explain what is the correct way of taxing capital gains in the presence of inflation?

Q.8 The income profile of three individuals is described below:

2015 20162017 2018 2019 2020 Total Income

Person A 80008000 8000 8000 8000 800048000

Person B4000 6000 13000 13000 4000 8000 48000

Person C | 3000 |3000 4000 | 40004500 [500048000

Person C also receives a windfall income of 24500 in 2019. The tax system is described as follows: The first 2500 Rs. are exempt from income tax. Then income up to Rs.7,500 is taxed @4%. Income between Rs.7500 and Rs.15,000 is taxed @9%. Income between Rs.15.000 and Rs.25.000 is taxed @ 12.5% while income above Rs.25.000 is taxed @ 15%.. Calculate the total (lifetime) tax liability of all persons. Is this tax system horizontally equitable? Is this tax regime regressive/progressive? Suggest some policy measures that the government may adopt in this scenario to make the lax system equitable?