Canons of Taxation

Canons of Taxation:

Canons of taxation are believed as basic principles of taxation. Adam Smith laid down the canons of taxation shown below:

a) Canon of equity
b) Canon of certainty
c) Canon of convenience
d) Canon of economy

Canon of equity:

This canon is also termed as the ‘ability to pay’ principle of taxation. This means that taxes must be imposed according to the capacity of the tax payer. Poor must be taxed less and rich must be taxed more. This canon includes the principle of justice. Every person contributes according to their capability. Since the cost of running the government must be equally borne by all, this canon is acceptable.

Canon of certainty:

All tax payers must know the amount of tax to be paid, when to be paid, and where to be paid and as well must be certain concerning the rate of tax to make investment decisions.

Canon of convenience:

Tax payment must be convenient and less troublesome to the tax payer. Example, income tax collected at source, sales tax collected at the time of sales and land tax collected subsequent to harvest.

Canon of economy:

This canon identifies that the cost of collecting the revenue must be kept at the minimum possible level. The tax laws and procedures must be made simple, therefore as to diminish the expenses in sustaining people’s income tax accounts. That is, administrative expenses to be kept at minimum.

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