Reflection on the ability to pay theory of taxation in the context of South African Municipalities

Abstract

This paper evaluates, analyses and reflect on how the theory of the ability to pay and who benefit are applicable to the municipalities. Revenue collection is critical for the survival and sustainability of municipalities. This paper is theoretical in nature and scope and base its argument from secondary literature sources. This paper concludes that the theory of ability to pay is the most applicable in South African municipalities as ratepayers possess the ability to pay rates and taxes despite of the benefits from municipalities in terms of the services they receive. This theory is the direct opposite in its elements with the benefit theory. The benefit theory or voluntary exchange theory states that individuals which in this instance are municipal residents who benefit the most of municipal services in turn pay more taxes than those receiving minimal services.