Canons of Taxation
Canons of taxation are considered as fundamental principles of taxation. Adam Smith laid down the following canons of taxation:
1. Canon of equity
2. Canon of certainty
3. Canon of convenience
4. Canon of economy
This canon is also called the 'ability to pay' principle of taxation. It means that taxes should be imposed according to the capacity of the tax payer. Poor should be taxed less and rich should be taxed more. This canon involves the principle of justice. All persons contribute according to their ability. As the cost of running the government should be equally borne by all, this canon is justified.
Every tax payer should know the amount of tax to be paid, when to be paid, and where to be paid and also should be certain about the rate of tax to make investment decisions.
Tax payment should be convenient and less burdensome to the tax payer. e.g. income tax collected at source, sales tax collected at the time of sales and land tax collected after harvest.
This canon signifies that the cost of collecting the revenue should be kept at the minimum possible level. The tax laws and procedures should be made simple, so as to reduce the expenses in maintaining people's income tax accounts. ie. administrative expenditure to be kept at a minimum.
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