Canons of Taxation
Canons of Taxation meaning
It refers to the administrative aspects of a tax such as an amount, method of the levy, collection, rate of tax etc. The characteristics or qualities which a good tax should have or functions. Or can be said rules and principles of good tax should be poses.
Canons of Taxation are described as the characteristics or qualities which a good tax should possess.
In the book the Wealth of Nations written by Adam Smith published in the year 1776, he argued that taxation should follow four principles.
It must be remembered that cannons refer to the qualities of an isolated tax and not to the tax system as a whole.
A good tax system should have a proper combination of all kinds of taxes having different cannons.
There are four canons or maxims of Taxation as per Adam Smith. They are Canon of Ability, Canon of Certainty, Canon of Convenience, and Canon of Economy
Canon of Ability
Canon of Ability says that the government should impose tax in such a way that the people have to pay taxes according to their ability.
That is the rich person should pay more tax compared to a middle-class person or a poor.
Canon of Certainty
The second Canon of taxation is Certainty. It says that the government must ensure that there is no uncertainly regarding the rate of tax or the time of payment.
If the government collects taxes arbitrarily, that is on the basis of random choice or personal whim, rather than any reason or system, then these will adversely affect the efficiency of the people and their working ability too.
Canon of Convenience
The third Canon of taxation is convenience, where the method of tax collection and timing of the tax payment should suit the convenience of the people.
The government should make convenient arrangements for all taxpayers to pay taxes without any difficulties.
Canon of Economy
The government needs to spend money collecting taxes. For example, salaries are given to the persons who are responsible for collecting taxes.
The taxes where collection cost is more are considered as bad taxes. As per Adam Smith, the government should impose only those taxes whose collecting costs are very less and cheap.