Question

Explain whether or not the ability-to-pay principle of tax equity is consistent with the benefits received principle of taxation.

Answer 1

Answer - The ability to pay principle of tax is not consistent with the benefits received principle. The ability to pay is related to the fairness principle in the payment of taxes by the public. It states that the amount of tax should depend upon the level of income of person. This will ensure the fairness. However in benefit approach , the tax should be paid on the basis of the benefits received from the governement. However the resultant amount of tax might be different in both the cases. The person might be receiving high income , but lesser government benefits. Hence both the principle are not consistent with each other