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      Question

      Value Added Tax (VAT) is an example

      of:
      A A direct, progressive tax. Correct Answer Incorrect Answer
      B A direct, proportional tax. Correct Answer Incorrect Answer
      C An indirect, regressive tax. Correct Answer Incorrect Answer
      D An indirect, progressive tax. Correct Answer Incorrect Answer
      E None of these Correct Answer Incorrect Answer

      Solution

      VAT is an indirect tax levied on consumption. Since lower-income households spend a larger proportion of their income, the tax consumes a higher percentage of their income, making it regressive in effect.

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