Canons Of Taxation

Canons Of Taxation

Adam Smith has put forward four important canons, viz. canon of equity, canon of certainty, canon of convenience and canon of and economy. Modern economists have added some more canons to the above list. These canons have been given to ensure that certain principles are followed by the taxing authorities while framing the tax system. They are :

1. Canon of Equity 

According to Adam Smith "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 stresses the objective of economic justice.

 2. Canon of Certainty 

A tax should be certain and not arbitrary. In a broad sense, it implies that the time of payment, the manner of payment and the amount of tax to be paid should be certain and clear to avoid hardship to the taxpayer as well as to the government in imposing and collecting the taxes. 

3. Canon of Economy 

It implies that the cost of collection and administration of a tax should be as minimum as possible.Otherwise, taxes would prove to be an unnecessary burden upon the people. The complicated tax structure and administration would result into lack of economy.

4. Canon of Convenience 

Smith wrote, "Every tax ought to be levied at the time or in the manner in which it is most likely to be convenient to pay it.It refers to the time and the manner of collection of tax most convenient for the tax payer. This canon recommends an appropriate timing of tax collection and convenient mode of collection which would be convenient to the tax payer.

 5. Canon of Productivity  

It is also known as the canon of fiscal adequacy. It implies that the tax system should bring enough revenue for the treasury. It shows efficiency of a tax system. If a tax yields poor income it cannot be considered as a productive tax. According to this canon, it is better to go in for a few productive taxes rather than to impose a large number of unproductive taxes on the people.

 6. Canon of Elasticity 

This principle indicates efficiency of the authorities. It implies elasticity i.e. changes in tax revenue as per the changing state of the economy. Tax revenue should have an inherent tendency to increase alongwith the increase in national income.

 7. Canon of Flexibility

Flexibility connotes the absence of rigidity in the tax system. A flexible tax quickly adjusts to the new conditions. Flexibility in the tax system refers to changes in the tax coverage and tax rates without delay to meet changing requirements of the economy and the government.

 8. Canon of Expediency 

The tax systems should be based on economic, political and social considerations, so that the tax payers should have no doubt about its desirability.

  9. Canon of Simplicity 

The tax system should be simple in respect of assessment, collection and implementation. Hence, the tax payer is able to calculate and pay it easily. It would also avoid differences in interpretation and legal disputes.