CA Foundation · Business Economics · Public Finance
Which of the following is the most accurate statement about the 'benefit principle' of taxation?
The benefit principle says people should pay taxes in proportion to the benefits they receive from government services. It differs from the ability-to-pay principle, which bases taxes on capacity to pay and supports progressive taxation.
- ATaxes should be levied according to each person's capacity to pay
- BTaxes should be paid in proportion to the benefits a person receives from government servicesCorrect
- CTaxes should be uniform irrespective of income or benefit
- DTaxes should be levied only on luxury goods
Explanation
The benefit approach links tax paid to the benefit received from public goods, as in the Lindahl idea of pricing public services. Option A is the ability-to-pay principle, which supports progressive taxation. Options C and D are not recognised principles.
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