Family Economics And Consumer Education 3 (2+1)

Lesson 13 : Taxation

Cannons Of Taxation /Principles Of Taxation

Qualities which a tax should possess are described as cannons of taxation. Cannons refer to qualities of an isolated tax and not to the tax system as a whole. Cannons relate to good tax system and all kinds of taxes refer to the rate , amount, method of levy and collection of a tax.
There are four cannons of taxation:
They are

1. The cannon of equality
2. The cannon of certainty
3. The cannon of convenience
4. The cannon of economy.

1. The cannon of equality:

A good tax should serve the purpose of equaity or justice. It should signify equality of sacrifice not the amount of tax. Tax should be such that it should be paid according to the ability to pay. It means that rich should pay more and poor less as former has more ability to pay than the latter. The burden of tax has to be distributed on the basis of their ability to pass on the tax payer. To achieve this cannon of equity the tax must be progressive.

2. The cannon of certainty:

The cannon implies that the tax which an individual has to pay must be certain and not arbitrary. The time of payment, means of payment, mode of payment, amount should be clear and certain to tax payer well in advance, so that they make adjustment in their expenditure. Further when taxes are certain the government can also estimate the exact revenue yields and prepare a sound budget.

3. The cannon of convenience:

The timing of tax collection and its mode of receiving payments should be such that it is easy and convenient to the tax payers. This will help the tax payer to make payments when they have sufficient money or income. Income tax of salaried people may be deducted at source at the time of receiving salaries.

4. The cannon of Economy:

The cost of tax collection should be minimum. It should not involve uncertainty expenditure in collection and administration of taxes.
Modern concept of cannons of taxation:
Modern economists have added a few more cannons of taxation viz

1. Cannon of productivity
2. Cannon of elasticity
3. Cannon of simplicity

1. Cannon of productivity:

Taxes should bring sufficient revenue to the state. Taxation should be stimulate the productive activity or effort of the community. So government should get more revenue. It should act as an incentive to production. If import duties are levied they protect domest industries and stimulate infant industries.

2. Cannon of elasticity:

Tax collection should be according to the prosperity of the country. Tax revenue of the state should correspondingly expand or contract according to the change in national income. It is regarded as an index of the efficiency and stability of the state. i.e. tax should be flexible/elastic it should change according to the requirement /necessity of the government. So tax should not be rigid, it should vary and change according to priority, convenience, national interest, vary according to the condition.

3. Cannon of simplicity:

The tax should be simple and intelligible. So that, a common man can understands it. If the tax is simple a common man can understand it and he can calculate it and pay it conveniently. Hence tax should be simple. It should not be elaborate.