CA Foundation · Business Economics · Public Finance
Under the 'ability to pay' principle of taxation, which of the following is most consistent with vertical equity?
Vertical equity under the ability to pay principle means that taxpayers with higher incomes should pay a larger amount or share of tax than those with lower incomes. Lump-sum taxes ignore ability, and paying by usage reflects the benefit principle instead.
- AEvery citizen pays the same lump-sum tax
- BTaxpayers with higher incomes pay a larger amount or share of tax than those with lower incomesCorrect
- CTaxpayers pay in proportion to the public services they personally use
- DTaxpayers with equal incomes pay different taxes depending on occupation
Explanation
Vertical equity means people with greater ability to pay should contribute more. Option A is a regressive poll tax, option C is the benefit principle, and option D violates horizontal equity, which requires equals to be treated equally.
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