Question

Describe canons of Taxation.

Answer 1

According to Adam Smith, there are four canons or maxims of taxation. They are as follows:
Canons of Taxation:

1. Economical
2. Equitable
3. Convenient
4. Certain
5. (Efficient and Flexible)

1. Canon of Ability:

• The Government should impose tax in such a way that the people have to pay taxes according to their ability.
• In such a case, a rich person should pay more tax compared to a middle class person or a poor person.

2. Canon of Certainty:

• The Government must ensure that there is no uncertainty regarding the rate of tax or the time of payment.
• If the Government collects taxes arbitrarily, then these will adversely affect the efficiency of the people and their working ability too.

3. Canon of Convenience:

• The method of tax collection and the timing of the tax payment should suit the convenience of the people.
• The Government should make convenient arrangements for all the taxpayers to pay the taxes without difficulty.

4. Canon of Economy:

• The Government has to spend money collecting taxes, for example, salaries are given to the persons who are responsible for collecting taxes.
• The taxes, where collection costs are more are considered bad taxes.
• Hence, according to Smith, the Government should impose only those taxes whose collection costs are very less and cheap.