Explain critically the benefit of taxation? | Benefit of Tax

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In today’s article we are going to know about Explain critically the benefit of taxation? (Benefit of Tax). So let’s discuss this.

Benefit of Taxation or Benefit of Tax

According to benefit theory of taxation, the burden of tax must be in proportion to the benefit received by a person from the expenditure made by the government. The person receiving equal benefits from the government should pay equal amount as taxes and those receiving greater benefits should pay more as taxes than those receiving less benefits.

The govt. should not impose the taxes greater than the benefits received by the tax payers. Thus taxation is just like a price for the services provided by the government.

In this way, this theory emphasises that justice in taxation should be done it taxes are imposed in proportion to the benefit enjoyed by the people from the various services of the government.

Therefore, according to the benefit theory of taxation or benefit of tax. We get-

Aggregate benefit = Total volume of taxes.

Principle of taxation with diagram

This principle of taxation has been explained with the help of a following diagram. On OX axis we measure percentage increases in taxes. On OY axis we measure percentage increase in benefit. Here AB is the benefit line.

Explain critically the benefit of taxation? | Benefit of TaxFrom the above figure, it is clear to us that when benefit increases from OP to OP1. The percentage of taxes also increase from OM to OM1. It means taxation goes in proportion to the benefit enjoyed by the people. The higher the benefits, the higher is the tax and vice-versa.

Criticism of benefit of taxation or benefit of tax

The benefit theory of taxation or benefit of tax has been criticised on the following ground-

(i) According to critics, the benefit principle does not obey the principle of justice. This is because poor people receive higher benefits from the expenditure programme of a govt. Thus according to this the poor should bear higher taxes. But this is an unrealistic conclusion.

(ii) Government provide different types of services to the community, as a whole, not an individual basis.  Therefore in such a situation we can not use benefit principle to distribute the tax.


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