Division of Tax Powers:

On the basis of 'voting on their own feet', members of each benefit region or jurisdiction should pay for the amount of services that are provided by the respective jurisdiction. This simply suggests that nation-wide taxes to finance nation-wide services and taxes by the sub-central governments for financing the services provided by the sub-central governments.  The federal or national government can impose broad-based taxes like income tax since all the citizens irrespective of their residence get all the benefits rendered by the national  government and so  they should contribute.

Similar logic can be applied to the tax structure and instruments to be entrusted to decentralized governments. 

For division of tax and non-tax powers between the federal and states, for instance, E.A.R. Seligman states three important principles for each of the competing tax jurisdiction.  The three principles are  (a) efficiency  (b) suitability and (c) adequacy K.T. Shah says that financial resources placed at  different levels of  government should correspond to the functions and obligations assigned to each of them. B.P.Adarkar states that for an efficient working of the federal financial system three essential principles of independence, elasticity and administrative economy are needed. 

The principles generally agreed upon for the division of resources between the federal and state governments are the principles of 

(i) independence and responsibility

(ii) adequacy and elasticity

(iii) equity

(iv) integration and coordination. 

(v) accountability

(vi) uniformity and

(vii) fiscal access. 

Of all these principles the most vital aspect is efficiency and it is related to the administration of the tax. It may be noted that the base of the tax jurisdiction is the most important element which has a bearing on administrative efficiency.  If the tax base is more and more extended, a broader tax jurisdiction should be assigned to that tax. 

For example, the base of a property tax is narrow, so it is given to the local jurisdiction. Similarly a tax on commodities of mass consumption with its broader tax base should be entrusted to the federal or national government. So is the case with customs  duties , income tax, corporation tax in several federal economies including in India.  So when tax powers are divided on efficiency  and administrative economy considerations, the phenomenon of non-correspondence emerges in almost all federations.