Association of Chartered Certified Accountants (ACCA) Certification Practice Test

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Which of the following taxes aims to redistribute income and wealth?

Sales tax
Income tax
Excise tax
Stamp duty

The correct answer is: Income tax

Income tax aims to redistribute income and wealth because it is based on the principle of progressive taxation, where individuals with higher incomes pay a larger percentage of their income in taxes compared to those with lower incomes. This system is designed to reduce income inequality by collecting more from those who can afford to pay more and using these funds to support government programs and services that benefit the entire population, particularly lower-income individuals and families. The other options, such as sales tax, excise tax, and stamp duty, do not typically focus on redistribution of wealth. Sales tax is applied uniformly regardless of income level, meaning it can disproportionately affect lower-income individuals as they spend a larger portion of their income on taxable goods. Excise taxes are specific taxes on certain goods, like alcohol or tobacco, which do not have a direct aim of redistribution but rather regulate consumption. Stamp duty, a tax on legal documents and property transactions, is also not primarily designed for wealth redistribution but rather collects revenue on specific transactions.