Ability to Pay [Tax Law] Law and Legal Definition

Ability to pay is a principle in taxation that speaks about tax fairness. According to this principle, taxes must vary according to the amount of wealth, or amounts of income earned by individuals. Hence, individuals who earn income in different amounts must be taxed at different rates. Individuals who earn more income must pay more tax because they have the ability to pay more and it is not because they use more government goods and services that they are taxed higher. The principle of ability to pay is applied in cases of progressive taxation.