Principle

of
Taxation
Name: Amjad Mehmood
BBA-V
Section: C
Topic: Summary Of chapter no: 3
Ethics
Ethics is considered as more than moral, religious and legal concept. The most important element in
ethical behavior is knowledge that should be completed for welfare of society. Apart from revenue
generating source taxation is best way to execute the national objective of social and economic
development, it gives different incentive to individual and businesses to promote their growth i.e. tax
exemption. It protect local industries by increasing local import taxes and along with that it plays vital
role to minimize the discrimination among various business classes and it reduce inequalities
distribution of wealth. Tax is considered as compulsory contribution in state so it is upmost right of an
individual to pay taxes and have a compliance with laws related to taxes otherwise they could be faced
with some sort of coercive thing but it is responsibility of a state to impose taxes on rational basis. There
are certain canons (rules) of taxation that are defined by Adam smith in his book. Canon of equity, there
must be equal justice to pay taxes according to tax should be paid to government according to
someone’s ability. Canon of certainty, according to this principle tax payer should be certain about
everything that how much to pay taxes, whom to paid, when to paid and how to pay, on other hand
government should be have certain too. Canon of convenient, there must be convenient tax system for
tax payer such mode and appropriate timing should be very much convenient. Canon of economy,
according to this there must be economical tax administration which mean cost of tax collection should
be lower than the tax collected amount. As government’s activities and functions have been increased
lot the government must have to stable some economic factors including i.e. full employment, reduce
income inequality and promote growth. So some additional canons have been added by modern
economists which includes: Canon of productivity according to this tax should be capable of generating
enough revenue for treasury which eliminate deficit problems. Canon of elasticity, tax imposed should
be elastic so it can increase and decrease according to requirement of state. Canon of flexibility,
according to this tax structure must be flexible according to changing of economical things in state.
Canon of simplicity, tax system must be defined and clear to both for tax payer and for individual not it
should be complicated to understand. Canon of diversity, according to this government should collect
taxes from different sources government should not rely on only single source otherwise it will create
inequality among groups. Tax structure is critical part of economical organization of society so it must be
match with economics of the state but the purpose should remain same to generate revenue and tax
structure should be according to above canons it should not be discriminatory in any aspect among any
classes. Federal Board Revenue (FBR) is main responsible and authorized to under law to monitor, assess
and levy and make collection of taxes. There are certain events where they possess certain powers
which includes: assessment of taxes, collection of revenue, seize of property, attachment of bank
accounts, and they can initiate legal proceeding against tax payers. These sort of powers can be misused
and can become harsh power, as exercised of these powers results against taxpayer, loss of property
and income, and imprisonment. So ethical behavior should be considered to these powers within the
principle of goodness and morality. In order to protect the interest of taxpayer and to avoid abusive use
of powers there are four pillars for tax administration. 1. Fairness, there must be fair and neutral in
administrating the law regardless of ethnicity and race. 2. Transparency, There must be transparency in
proceeding. 3. Equity, Collecting most revenue does not mean best administration but thing matters
how the revenue generation is completed so there must be equality in collection. 4. Accountability,
there must be hard system of accountability which can stop illegal doings from taxpayers. Under these
pillars there certain ethical issues that are commonly faced by administration which are: political
influence, acceptance of gifts, corruption, lack of autonomy, conflict of interest, discretion etc. In order
to eliminate these sorts of pitfalls there are certain principles which are: open plans, open policy
statements, open rules, open finding, open reasons, open precedents, and fair informal procedure.

There are certain responsibilities of tax implementing administration which includes they should obey
law and should not provide any advantage to taxpayer that is according to law, they should expose their
all honesty and integrity in order to maintain activities smoothly, they have to implement laws on fair
basis regardless particular class, they must provide efficient and quality services, they must record
information accurately, they must give respond to taxpayer for their refund claim, they must educate
taxpayer to make them inform about rights they have and about responsibilities. There are five
fundamentals of ethics for tax practitioners. 1. Integrity there must be honesty, truthfulness and
fairness shown by tax practitioners and it must be shown in all professions. 2. Objectivity Tax
probationers do not adopt and shows biasness towards anyone in order to fulfil their interest. 3.
Professional competence and due care tax practitioners must provide their service uniquely to clients in
very efficient and unique way by using their knowledge and skills at high level and must be consistent
with changing in their knowledge, they must act according to specified standards. 4. Confidentiality tax
practitioners must have to kept information secret until and unless they are been allowed to disclose
they must the order to kept information secretly and should not be deliver to third party without
permission and they should not use these sort of information for their own use. 5. Professional
behavior tax practitioners must have to compliance with rules and regulation and should not do any act
which devalued their profession. Ultimately they must act with honesty, courtesy, and with
consideration to all those whom they make contact within professional boundaries. Then there is ethics
for taxpayers, as there are three approaches to ethics for tax compliance which includes: 1.
Utilitarianism it suggest that there should general happiness for all sort of population which means
there must be satisfaction of desire for maximum number of people. 2. Deontology which bases ethics
on idea of duty. 3. Virtue ethics it mainly emphasize on virtues we have in our life, a broad level of
virtues should applied here not only just honesty but it includes all aspect of virtuous almost. Then there
is ethics and morality for taxation compliance. For taxpayer following utilitarianism there is goal that is
economically defined that all people almost should have available resources, good, and service and
these should equally distributes to almost everyone, this is done for the sole purpose for motivation
people to pay high taxes because they will be having high availability of resources so in result they will
pay high taxes. Taxpayers following deontology must follow specified absolute duties. Duties includes
respect for others people rights this means that tax must with appropriate amount, if anyone is using
any property he must have to taxes for usage. Then virtue ethics is more related fairness of taxation,
there should financial incentives that motivate taxpayer to deliver his or her talent but when there will
be high taxes it will demotivate them because it will reduce their take home cash. When there will be
high take home pay people will tend to give high donations and from the time perspective they will do
more social work this is kind of virtual work. Taxes can be used for any purpose but according to law
mostly utilitarianism will focus to use these taxes on publics services includes hospitals and educational
institution because it is welfare of many people and virtue people will also approve this kind of an act.
When we turn to aid poor people utilitarianism approve this because it will transfer the assets from rich
to poor and benefit to maximum people and deontology said it is duty to care poor people. Taxation
addressing the needs of all these ethical thoughts can attract better compliance so morality to pay taxes
is justified and state is responsible to run structure efficiently. Then there is conduct of taxpayers Tax
avoidance is generally the legal exploitation of the tax regime to one's own advantage, to attempt to
reduce the amount of tax that is payable by means that are within the law whilst making a full disclosure
of the material information to the tax authorities. By contrast tax evasion is the general term for efforts
by individuals, firms, trusts and other entities to evade the payment of taxes by illegal means. A virtue
ethicist would perhaps dislike tax avoidance. It is, after all, hardly virtuous to exploit rules knowing that
one is exploiting them in unintended ways to redistribute the disadvantage away from oneself. Whistle
blower is a man who reports disguise or avoidance of tax pay impose prompting discovery or gathering
of charges, misrepresentation, defilement or offense, to the skillful authority having capacity to make a
move against the individual or against tax authority who are committing wrongdoings.