Question

Write about the different canons of taxation.

Answer 1

1. Canon of Equity:
   Since tax is a compulsory payment, all economists agree that equity is the cardinal principle in designing the tax system. The equity principle says that the rich should pay more tax revenue to the government than the poor because the rich have more ability than the poor to pay the tax.
2. Canon of certainty: Government should announce in advance the tax system so that every taxpayer will be able to calculate how much tax amount one may have to pay during a year to the government.
3. Canons of Economy and Convenience: These two canons are related. As taxpayers, we incur a cost to process our accounts and pay the tax, for example, salary paid to accountants and auditors. Similarly, the government also pays salary to its taxmen and run huge institutions. If the tax is simple, then the cost of collecting taxes (taxpayer cost + tax collector cost) will be very low. Further, tax should be collected from a person at the time he gets enough money to pay the ‘ tax. This is called the canon of convenience. A convenient tax reduces the cost of collecting tax.
4. Canons of Productivity and Elasticity: Government should choose the taxes that can get enough tax revenue to it. Tax is paid by the people out their incomes. Therefore the tax system should be designed in such a way that the people automatically pay more tax revenue if their incomes grow. This is called the canon of elasticity.