The tax for which the rate of taxation increases with increase in the base amount, is termed as progressive tax. On the other hand, the tax for which the rate of taxation is universal and does not increase with increase in base amount, is flat tax. Progressive tax is based on the principle that higher the income of the individual or bigger the business, the higher is the ability to pay tax. Thus, in economies that have progressive tax, it is the wealthier people of the society who are made to pay bigger amounts as tax while the low income group is practically exempted from the payment of taxes. When it comes to flat tax, however, the underlying principle is that everyone should be treated equally and there should be no discrimination whatsoever when it comes to payment of taxes. So, in countries like Bulgaria, Romania and Russia that follow a flat tax system, the government decides on a particular rate of interest for tax deduction, applicable for all and does not allow for any exemptions. Both these methods of taxation come with their own pros and cons. However, the progressive tax vs flat tax debate has been continuing ever since the two methods of taxation came into existence.
