Concept of Equity:

Equity means justice and fairness and it has two dimensions which are common to almost all the literature in taxation. 

According  Horizontal Equity Principle people in equal circumstances should be treated equally but people in different circumstances must be treated differently as per the Vertical Equity Principle. It is easier to identify dissimilar circumstances but difficult to prove similar circumstances.

For example two individuals might be earning the same amount of income but they seem to possess different endowments or they might  be facing different types of expenditure liabilities Under this type of circumstances it is difficult to fix a criteria to measure equality against difference between them to apply the principle of equity i.e., justice and fairness for the implementation of a taxation policy.