PRINCIPLES OF TAXATION

In this paper we deal with the fair distribution of tax burden among the members of the society. Although, distribution of income is not an economic issue, but many economists have involved in fair distribution of income and tax burdens. There are two main principles of taxation have been developed so far: the one is benefit principle and the other is ability to pay principle. Benefit principle implies that, each taxpayer should contribute to the financing of public goods and services, in line with the benefits received! Thus, it serves as an efficiency rule, since the expenditure and the revenue side of the budget is connected under benefit principle. But, ability to pay or fiscal capacity principle of taxation, involves in determining the rate structure of the different taxes. Since the tax burdens are determined in line with the fiscal capacity or by the ability to pay, the tax structure is progressive. Because, under this principle the taxpayers are assumed to face to same sacrifice that is the same level of welfare loss due to paying to the government. All sacrifice rules result in progressive tax rate structure.