The first theory is the Benefit Theory. This theory is anchored from the idea of some economists, states that taxes are divided to every person according to the benefit people can get from the government activities and spending. It (taxes) should be treated as payment of what people get like goods and services from the government.
This theory explains that the basis of collecting tax from the people is the benefits that the government rendered to them. In such perspective, the higher the benefits they get from the government the higher the tax to be collected from them. It is also stated in this theory that taxes are considered as payments for the services and benefits that they have obtained.Second is the Cost Service Theory. It is from the economist that states, government should tax citizens according to the cost of services they received from the government and citizens must met the cost of services they derived. The tax on the other hand must be equal to the cost of benefit of the receivers. This theory implies that the tax to be collected by the government must be equal to the cost of services the citizens received from them.
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Since the government renders various services to the citizens the cost of those services must be met by the citizens through paying their taxes. This means that the tax an individual should make up for must be equal to the cost of services he or she receives.The third theory is the Ability to Pay Theory that is anchored from the idea of the economists that states that the most popular and accepted theory of taxation is the citizens of a country should pay taxes to the government in accordance with their ability to pay. It seems extremely reasonable and simply that charges ought to be imposed on the premise of the countable limit of a person.
It appears that if the duties are demanded on this standard as expressed above, at that point, equity can be achieved. The trouble arises with the meaning of capacity to pay. The economist are not consistent in the matter of what ought to be the exact measure of a person’s capacity or personnel to pay. In this theory, the ability to pay refers to the capacity of a person to pay his or her taxes. Unlike the other two theories above, this theory does not take into consideration the cost of services or benefits the citizens received from the government when it come to paying their taxes. According to this theory, taxes should be based on the amount of money a person earn.
Those people who are earning more money will pay higher taxes than the people earning lesser money than them.The fourth theory is the Proportionate Principle. This was proposed by J.S. mill and other classical economist to improve and satisfy the idea of justice in taxation. They suggested the principle of proportionate in taxation that can help to ensure that all taxes are levied in proportion to the income of the people.
In this generation, modern economists are different from this view. They believe that when income will increase the marginal utility will decrease. The equality of taxation can only be achieved if the higher rates of taxation will belong to the person with a higher income whereas the person whose income is lower will have low rates.Lastly, the Voluntary Exchange.
This theory was presented by Poter Krut Wicksell and Esik Lindhal. It is the first clear formulation of a theory of public expenditure which can give a positive interpretation. Individuals will have an agreement over the level of public goods supply and to the distribution of the cost between them. The bargaining equilibrium which is the result of the agreement of both parties is called Pareto optimal.
Also, each individual pays a price in terms of private goods that is equal to his marginal willingness to pay. This formulation leads to the voluntary exchange model. Voluntary exchange model is an approach that seeks to establish conditions that the public goods can be provided without coercion and on the basis of unanimous agreement. This will result in the voluntary agreement and not by compulsory taxation in terms of financing the provision of public goods.