Explain various canons/principle of taxation?

Adam smith presented four canon/principle of taxation. They are:

1.                 Canon of equality:

This canon obeys the principle of equality and justice. This is the most important canon of taxation. The canon of equality does not mean that every tax payer should pay the same sum. That would be fairly injustice. Nor it means that they should pay at the same rate. This canon mean the equality of sacrifice, i.e. tax should be imposed according to the ability of the tax payer, higher the income higher the rate, lower the income lower the rate of tax.

2.                 Canon of certainty:

The tax which each individual is bound to pay ought to be certain and not absolute. The time of payment, the way of payment, the amount to be paid all to be clear and plain to the tax payers. These will discourage corruption and evasion of taxes.

3.                 Canon of convenience:

Every tax necessary to be levied at the time or in the such manner, which is most likely to be convenient for the contributor pay it.

In other word a tax should levied at a time when certain revenue has been expected by the tax payer e.g. when a farmer reap out their crops on that time agriculture tax should be imposed, because is the most convenient time for the agriculture tax payer.

4.                 canon of economy:

A tax should be collected by the minimum possible cost. A tax is economical if its cost of collection is small if government appoint highly salaried staff and absorb major portion of the tax, the tax will be considered as uneconomical. According to smith.

“Every tax is to be as imposing as both to take out and keep out of the pocket of the people on little cost”.

5.                 Canon of productivity:

This canon indicates that a tax when levied should produce important revenue to the government. If a few taxes imposed field a significant fund for the state then they should be preferred over a large number of small taxes while produce less revenue and are expensive in collection.

6.                 Canon elasticity:

According to their canon a tax should be elastic, do that changes can be easily made. According to the need of the state. Whenever the government is in need for more funds then it should make changes in the structure of taxation for collection of more funds.

7.                 Canon of simplicity:

According to this canon a tax system should be fairly simple, plain for the tax payer. If it is complicated and difficult, then will lead to corruption.