Canons of Taxation — Fundamental and Other Canons of Tax Canons of Taxation — Fundamental and Other Canons of Tax Canons of Taxation are the fundamental principles of taxation which are used to create an effective taxation system in a country. Canons are basically characteristics of a good taxation system.
Knowledgiate Team May 15, 0 43, 4 minutes read Tax is the major source of Government revenue. In the medieval times, no proper attention was given to the tax by the economists.
They believed that the Government should collect minimum revenue from tax. As tax affects every section of the society in one way or the other, it should be levied very carefully with a view to avoid unnecessary hardships to those who have no capacity to pay. The Government should follow the canons of taxation propounded by various economists for efficient economic administration.
Among 9 canons of taxation discussed, Adam Smith propounded the following first four canons of taxation — 1 Canon of Equity.
It implies that tax should be Levied on citizens on the basis of equality. The sacrifice of all citizens must be equal. In other words, this canon of taxation maintains that every person should pay to the State as tax according to Liability to pay. It implies taxing the people on the rate of taxation.
This canon of taxation suggests that the tax which an individual has to pay, should be certain and not arbitrary. It should be certain to the lax payer how much tax he has to pay, to whom and by what time the tax is to be paid.
The place and other procedural information should also be clear. It would protect the tax payer from the exploitation of tax authorities in any way.
It will enable the tax payer to manage his income and expenditure. The Government will also be benefited by this principle.
According to this canon of taxation, every tax should be levied in such a manner and at such a time that it affords to the maximum of convenience to the tax payer. According to Adam Smith, a good taxation policy must be convenient for the tax payer.
The reason is that the tax payer for goes his purchasing power and makes a sacrifice at the time of payment of tax hence the Government should see that the tax payer suffers no inconvenience.
For example, in an agricultural country, tax should be collected only after the harvesting has been done. This principle suggests that the cost of collecting tax should be the minimum so that a major part of collections may bring to the Government treasury.
If the administration expenses in the collection of taxes consume a major portion of tax revenue collected; it cannot be said to be a good tax system. The important among them are- 5 Canon of Productivity. The theory was expounded by Prof. According to this canon of taxation, the tax should be of such a nature as to yield sufficient income to the Government to run the administration efficiently and to work for the welfare of the people.
Tax yield is important and every finance minister considers the yield before proposing any new tax. If a tax yields poor income, it cannot be said to be a good and productive tax. It is very often suggested that a few productive taxes are better than to go for a large number of unproductive taxes on the people.
The tax system of the Government should be elastic so that tax burden may be increased or reduced from time to time as and when tile demand for revenue changes. The tax system should have a capacity to respond quickly to the changes in demand for revenue.
If the tax system is inelastic, the Government cannot be able to meet various exigencies arise from time to time. According to this canon of taxation, the tax should not be complicated in its nature. It should be so simple that tax payer can understand its complications without the help of any expert.
It would safeguard the tax payer against the exploitation of tax authorities and experts It would also reduce the chance of tax evasion.Adam Smith's Four Main Canons of Taxation ↓ A good tax system is one which is designed on the basis of an appropriate set of principles (rules).
The tax system should strike a balance between the interest of the taxpayer and that of tax authorities. It may be nitpicking, but for what it’s worth Smith in Book V, Chapter 2 of The Wealth of Nations does not use the word “canons” but instead refers to four “maxims of taxation in general.” According to my Concise Oxford Dictionary a canon is a “Church decree” whereas .
The four fundamental canons of taxation were propounded by Adam Smith in They were: They were: Canon of Equity – Every person must pay taxes in proportion to his income. Adam Smith laid down four principles to guide the taxing authority.
Adam Smith’s Canons: The principles or canons of taxation enunciated by Adam Smith were so important that they have become classic.
Adam smith, the father of modem political economy, has laid down four principles or cannons of taxation in his famous book "Wealth of Nations". These principles are still considered to be the starting point of sound public finance.
According to Adam Smith, there are four canons or maxims of taxation on the administrative side of public finance which are still recognised as classic. To him a good tax is one which contains: 1.