tax,taxation& canon of taxation (slide)

According to Justice Holmes, the price to the Govt. for living in a civilized society is the tax. According to Taylor, taxes are the compulsory payments to Government without expectation of direct benefit to the tax payer.

CANON OF TAXATION

, Adam Smith gave four principle of taxation which he called Canons of Taxation.

Some other writers have also prescribed some other principles/canons.

“The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is in proportion to the revenue which they respectively enjoy under the protection of the state.” This canon tries to observe the objective of economic justice.

This canon describes that “The tax which the individual is bound to pay ought to be certain and not arbitrary. The time of payment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor and to every other person,” the tax-payers should not be subject to arbitrariness and discretion of the tax officials, in which case there will be a scope for a corrupt tax administration.

This canon takes into consideration the interest of the taxpayer the view of payment of tax. It emphasizes that the mode and timings of tax payment should be, so far as possible, convenient to the tax-payer. This canon recommends that unnecessary trouble to the tax-payer should be avoided; otherwise various ill-effects may result

Every tax has a cost of collection. It is important that the cost of collection should be as minimum as possible. It will be useless to impose taxes which are too widespread and difficult to administer. Productivity of taxes has been given important in this canon.

5. Canon of Productivity: It is also called the canon of fiscal

adequacy. According to this principle, the tax system should be able to yield enough revenue for the treasury and the Government should not be forced to resort to deficit financing. The canon is thus also called canon of adequacy.

6. Canon of Diversity:In line with canon of productivity, canon of diversity also gives importance to adequate collection of tax through diversification. Thus it stresses to the fact that it will not be a happy situation if the state depends upon few revenue inequitable as between different sections of the society. On the other hand, if the tax revenue comes from diversified sources, then any reduction in tax revenue on account of any one is likely to be very small on total tax revenue. However, too much multiplicity of taxes is also to be avoided. That leads to unnecessary cost of collection and violates the canon of economy.

7. Canon of Simplicity:The tax system should not be too complicated. That makes it difficult to administer and understand and breeds problems of difference in interpretation and legal disputes

8. Canon of Flexibility:It should be flexible so that it becomes possible for the authorities without undue delay, to revise the tax structure, both with respect to its coverage and rates, to suit the changing requirements of the economy and of the treasury.

9. Canon of Social Objectives:In this canon control and achieving social goal is emphasized. According to this canon, charging and collecting taxes always need to be in line with social and economic policy of the Government.

10. Canon of Functional Efficiency:Tax policy needs to be efficient, operative and objective. According to Prof. Dew, the tax laws and regulations must be such as easily understandable to the assesse, easily administraitable and administration needs to be objective in implementation and it should adhere to economy