Answer to Question #129723 in Economics of Enterprise for Vee

Question

Give a detailed explanation on the “ benefit principle” of taxation and equity

Answer 1

To undertake their mandate, governments require resources. To fund government projects and operations, governments raise revenues through taxing members of the public.

         The benefits principle holds that those that benefit the most from taxes should contribute more taxes. That taxation should be based on resultant benefits. In the spirit of equity, one pays for what they benefit from.

        The benefits principle is largely used in a situation where the consumers of near- public goods are identifiable where in case of non -compliance, they can be excluded from the utilization of the said goods.

         In this tax principle, the government confers a benefit to certain members of the public, who in return pays taxes to governments. An example of this principle at work is when the government levies toll from motorists using particular roads or through park fees for those who benefit from visiting parks

         The benefits principle also faces several headwinds in its application. There is a question on how the government would quantify the extent of the benefits of some public goods. Some of the government's expenditure cannot be divided to ascertain the degree by which an individual may benefit, and thus equity cannot be achieved in such a scenario. There is also reluctance by the public to pay for social goods.

References

AmosWEB is Economics: Encyclonomic WEB*pedia. (n.d.). Retrieved August 15, 2020, from www.amosweb.com website: https://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=tax+equity

The Principle of Equity in Taxation – Explained! (2014, April 25). Retrieved August 15, 2020, from Your Article Library website: https://www.yourarticlelibrary.com/economics/taxation/the-principle-of-equity-in-taxation-explained-2/38118