Taxable Capacity, Incidence of Taxation and the Tax Burden

TL;DRAbstract

Taxable capacity is the ability of individuals and businesses to pay taxes. It is not the ability of taxing authorities to raise revenue. The taxable capacity of a country can, therefore, be defined as the proportion of the national income that is above the ‘subsistence’ level, which is the minimum required to sustain its population and to maintain the productive capacity of an economy intact. If a state were to provide for all the needs of its citizens then, in theory, it could tax away their entire incomes and taxable capacity would be 100 per cent. In market economies, including-mixed economies, the majority of people provide for most of their needs out of incomes they receive; a government can therefore take away in taxation only a certain percentage of their resources.

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