Question

Define ability to pay and benefits received in your own words providing examples in two additional paragraphs

Answer 1

Answer: Ability to pay principle and benefits received principle are two approaches of taxation.

Ability to pay principle : According to this principle, the government imposes tax directly on individual's income and wealth . But it is totally depends on the paying ability of individual. In case of higher income, individuals have to pay more to the government as tax and with lower income individuals pay less.

Example : Tina earn $50,000 per year and Rupa earn $90,000 per year. In this case Rupa has more ability to pay than Tina. Therefore, according to the government law , as Rupa earns more than $75,000 per year, she bears 100% tax level where Tina pays less tax because of low income.

Benefits received principle : According to this principle, government impose tax on those people who are benefited by using government goods and services. If a person use more goods and services then she/he have to pay more . In case of low usation person have to pay less.

Example : If a traveller travel more then this means traveller using more road. In this case traveller have to pay more tax to the government . But if traveller use less the road then have to pay less.