What principle refers to the distribution of the taxation burden based on the ability to pay?

The principle that refers to the distribution of the taxation burden based on the ability to pay is equity. This concept is fundamental to the design of a fair tax system, which aims to ensure that individuals contribute to government revenue according to their financial capabilities. There are two main dimensions to equity: horizontal equity, which suggests that individuals with similar abilities to pay should contribute the same amount, and vertical equity, which posits that those with greater ability to pay should contribute more. By adhering to the principle of equity, a tax system promotes fairness and social justice, addressing income disparities within society.

In contrast, efficiency refers to the economic principle of minimizing waste and ensuring optimal allocation of resources, which is not directly linked to the distribution of tax burdens. Simplicity focuses on making tax systems easy to understand and comply with, while tax avoidance involves strategies used by individuals or businesses to legally reduce their tax liabilities and is not a principle governing the fairness of tax distribution.