The four canon of taxation by adam smith

The four canon of taxation by adam smith

Canon of Economy. Diversification in a tax structure will demand involvement of the majority of the sectors of the population. It can also be used to encourage certain action like a tax on plastic bags in South Africa to encourage people to reuse their plastic bags for the benefit of the environment.

Canon of Simplicity: The system of taxation should be made as simple as possible. This example can also be taken in accordance with the canon of equality.

principles of taxation

If the bulk of the tax is spent on its collection, it will take much out of the people's pockets but bring little into the State's pocket. Canon of Economy: The Government has to spend money on collecting taxes levied by it- Since collection costs of taxes add nothing to the national product, they should be minimized as far as possible.

definition of tax by adam smith

Tax should be levied at such a time, in such a way and such a manner that the taxpayer is not inconvenienced. During the war and after, certain taxes, e.

Canons of taxation pdf

Now, in most of the countries, progressive system of income and other direct taxes have been adopted to ensure equality in the tax system. Canon of Equality. But not by imparting the tax law as we see it fit. This equality, however, though good in theory, is difficult to attain in practice. This canon implies that a tax should be flexible or elastic in yield. This is the time when the cultivators can conveniently pay. Disadvantages of Indirect Taxes Indirect taxes are said to be regressive, which means that tax takes a lower percentage of income from the rich than from the poor. Kenyan taxpayers must always rely on the most current information from KRA. Therefore, the modern economists have added other principles or characteristics which taxation system of a country must satisfy if the objectives of modern Governments are to be achieved. Related posts:. The tax system should also be responsive to quick changes. Since they are elastic and easily adjustable, many government objectives can be achieved through them. Now, the Governments are expected to maintain economic stability at full employment level, they are to reduce inequalities in the income distribution, and they are also to perform the functions of a Welfare State. In this way, a large amount of the collections will go directly to the treasury, and therefore, will be spent in the government projects for the welfare of the economy, country and the people. In order to be just, a tax system must be broad-based.
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Adam Smith's Canons of Taxation