Which principle of taxation states that taxes should be levied according to taxpayers' ability to pay?

The principle of taxation that states taxes should be levied according to taxpayers' ability to pay is known as equity. This principle emphasizes fairness in the tax system, ensuring that individuals and businesses contribute to public revenue in proportion to their financial capacity. The underlying concept is that those with greater financial resources should bear a larger tax burden compared to those with lesser means, promoting a more just economic environment.

This equity principle is essential in progressive tax systems where tax rates increase with income levels, thereby helping to reduce income inequality within society. By aligning tax liabilities with the ability to contribute, this approach aims to create a balanced distribution of the tax burden, ensuring that public funding is generated while also considering the individual taxpayer's situation.