Economists have propounded money
principles regarding a good taxation system. Adam smith, the father of modern
economics has mentioned four canons of taxation as follows:-
1. Canon
Of Equality :- This
principle states that people should pay
taxes according to their income or capacity. Equity means Equality of
sacrifice. Therefore, the rich should pay more taxes.
2. Canon
Of Certainly :-
According to this principle, there should be certainly regarding taxes. It
means the time of payment; manner of payment, quantity to be paid ought to be
clear and plain to the contributor and to every other person.
3. Canon
Of Convenience :-
According to this principle, the convenience of the tax payers should be kept
in mind while imposing tax. It means that tax should be levied in a manner so
as to cause least inconvenience to the tax payer.
4. Canon
Of Economy :-This
principle states that collection of taxes should be done with minimum
expenditure. It also states that taxes should not adversely affect the
production of a society and its will to save and invest. Besides the above four
canons, modern economist have given several other canon as follows :-
5. Canon
Of Elasticity :-
According to this principle taxation system should be such that the government
can increase or decrease tax according to its need. As national income increase
revenue to the government through taxes should also increase.
6. Canon
Of Simplicity :-
According to this principle taxation should be simple so that even a common
citizen may understand it , this minimise the evasion of tax and keeps the tax
payer satisfied.
7. Canon
Of Productivity :- This
principle states that tax should yield an adequate amount of revenue to the
public authority for undertaking welfare and developmental activities.
8. Canon
Of Comprehensiveness :- Taxes should be diversified so that all beneficial receipts are covered.
In other words, there should not be few taxes from which the government tries
to get large revenue.
9. Principle
Of Equitable Distribution Of Income And Welfare :- According to this principle a good
tax system is one, which reduces inequalities of income and wealth. Increasing
the burden of taxes on the rich and using the tax revenue for the betterment of
the poor can do this.
10. Principle
Of Economic Stability :- This principle is promoted by reduction of taxes during depression to
increase the level of consumption. Tax rates should increase with national
income and vice versa. During inflation taxes should be increased, mostly on
non-essential items to control their consumption.
11. Principle
Of Co-ordination :- These
days central, state and local government impose taxes separately as per this
principle there should be a co - ordination in taxes levied by different
governments. Different levels of government should not charge the same type of
taxes.
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