The tax system is a crucial sector in the economy of a country because it will regulate the extent to which individuals and companies should pay taxes on the profits realized from any returns. Tax efficiency is the effort of the government through the taxation body to minimize tax liability hence, in the end, will translate into a better form of taxation. On the other hand, the equity of a tax system is the phenomenon of a taxing body to try to make it equitable for all people to pay a certain amount of money that will go into the building of an economy.
In particular, the two terms are interrelated in one way or the other, but there are also some differences between each other. Tax efficiency is mostly responsible for improving the productivity of a taxing body while the equity tax system will tend to safeguard the interest of the taxpayers (Stiglitz & Rosengard, 2015). In relation to the cost imposed on the taxpayers, the two terms are again different terms altogether because the efficiency of a tax system will increase the cost imposed on taxpayers since simplicity always calls for more expenses.
However, equity of a tax system reduces the cost imposed on the individual who pays taxes because all it does is streamline the mode of payment into an operational system (Elkins, 2006). Therefore, they differ in this sector since one increases the cost imposed on taxpayers while the other decreases it. Consequently, the two concepts exist as two opposing forces that counteract each other and as a result, they end up balancing the tax system. The benefits principle requires that an individual pay taxes equal to the amount he or she is willingly earning from the sale of goods and services on offer. Moreover, this principle acts as a guiding principle in providing a clear and distinctive measure between the two terms.
In conclusion, it is evident from the above discussions that both the efficiency of a tax system and the equity of a tax system are critical aspects of the taxation body. Noteworthy is that each of them plays a major role in shaping of the kind of taxation system a country will assume. Finally, the benefit principle will safeguard the application of these two differing concepts within the taxation system to ensure that neither of the two will outweigh the other exceedingly.
References
Elkins, D. (2006). Horizontal equity as a principle of tax theory. Yale Law & Policy Review, 24(1), 43-90.
Stiglitz, J. E., & Rosengard, J. K. (2015). Economics of the Public Sector: Fourth International Student Edition. WW Norton & Company.
