Skip to main content

Characteristics of good tax system. (Canons of taxation)






















Tax is an effective fiscal tool to influence the economy. It has also certain norms which have to be followed to make it more effective and popular. That state is a welfare state which imposes less amount of tax and collects more amount of revenue. So the tax should be effective. A good tax system should help to establish fair income distribution and socio-economic stability.

According to Adam Smith, "A tax is a contribution from citizens for the support of the state."

Adam Smith has given the most comprehensive and exhaustive concept of a good tax system which is known as the canon of taxation. 

1 Canon of equity 

A good tax should be based on the ability to pay principle of taxation, and it has to assure social justice to all taxpayers. In general, in this canon of equity, everybody must be treated equally for tax or according to capacity or ability they should pay the tax and unequal must be treated unequally. 

2 Canon of certainty 

Every taxpayer must know the time of payment, amount to be paid, method of payment, where and whom to be paid. This certainty creates confidence for the taxpayers. In general canon of certainty is related to the collection of tax. Amount of tax collection must be certain. 

3 Canon of simplicity 

The tax system must be simple and easy to understand. Everybody should know what they actually paid for tax and when also how much? 

4 Canons of economy 

The tax collection should be the minimum and the contribution of tax revenue in the government treasury should be the maximum. Hence, the government has to collect more amount of tax revenue by spending the minimum administrative cost. 

5 Canon of elasticity 

The tax imposed by the government should be possible to change according to the requirement of the economy so that the government is able to collect more revenue and provides social justice to the people. In general, as the income of consumer changes the government tax collection also changes. 

6 Canons of diversity 

It should be diversified in such a way that every taxpayer must pay according to his ability to pay. By collecting tax revenue from a variety of taxes, the burden of tax can be diversified among people.
Labels:

Popular posts from this blog

A book review “ Karodau Kasturi”

As being a Nepali, I am so very fascinated with the Nepali literature. So, this year (2075) I made a New Year Resolution to read at least a book (Nepali) every month. I finished reading Khabuj by Benyamin ( translated by Dinesh Kafle), Seto Dharti by Amar Neupani, China Harayeko Manche and Hari Bahadur by Haribansa Acharya, Sallipir,Yaar,Lu and Chocolate by Nayan Raj Pandey, Juneli by Brajesh, Juino by Binita Baral, Summer Love, Monsoon and Katha ki Patra by Subin Bhattari, Karnali Blues and Firfire by Buddhi Sagar, Maha ko Ma by Madan Krishna Shrestha and so on. Last weekend I finished reading “Karodau Kasturi” by Madan Puraskar winning Author ‘Amar Neupane’. Though this book was with me from past few years, I could not manage time to read this one. So, last Friday I started reading this book. Karodau Kasturi is based on actor/comedian Haribansa Acharya. This novel is all of imagination, not the true story though, but reflects the truth of the society. The name of no...
Read more

Concept of Temperature: Short Questions and Numerical

Heat and temperature Short questions: 1.        Distinguish between heat and temperature? 2.        Distinguish between heat and work? 3.        When two bodies A and B are brought in contact, heat flows from body B to A. Which is at higher temperature? 4.        Why is mercury used commonly  as a thermometric substance? Give two reasons. 5.        What is thermal equilibrium? Can two object not in contact ever be in thermal equillibrium? 6.        State Zeroth law of thermodynamics? Define temperature on the basis of Zeroth law  of thermodynamics? 7.        Why two objects in thermal contact come in thermal equilibrium? 8.        Which physical quantity determines the direction of flow of heat? 9.    ...
Read more

Life Cycle Hypothesis

This theory was developed by Franca Modigliani, Nobel Laureate of 1985, Richard Brumberg and Albert Ando in 1950s and 1960s. It is called MBA hypothesis. According to this theory, consumption is a function of the lifetime expected income of the person. The consumption depends on the resources available to the person, the rate of return to the capital, the spending plan and the age at which the plan is made. It depends on:  i. Resources  ii. Spending plan  iii. Rate of return on capital  iv. The age at which the plan is made  According to Modigliani the point of departure of the life cycle model is the hypothesis that consumption and saving decision of household at each point of time reflects more or less conscious attempt to achieve the preferred distribution of consumption over the life cycle. Subject to the constraint imposed by the resources occurring to the household over...
Read more