The 'Vertical Equity' principle of taxation implies that:

Solution

• Equity in taxation has two main principles:
• Horizontal Equity:  People with  similar ability to pay  (similar income, wealth) should pay similar amounts in tax. (Option a describes this).
• Vertical Equity:  People with  greater ability to pay  should contribute a  larger proportion  of their income/wealth in taxes. This is the justification for  progressive taxation , where the tax rate increases as the taxable amount increases. It is based on the concept of the "diminishing marginal utility of money."