Rajiv Gandhi National University of Law, Punjab

(Established by Punjab Act No. 12 of 2006) Bhadson Road, Sidhuwal, Punjab

(Accredited ‘A’ Grade by NAAC)

Project Submission of
Taxation

for
B.A. LL.B. (Hons.) VIth
Semester
Session 2020-2021

Topic: Canon Of Taxes

Submitted by: Deepak Kilania

Roll No.: 17048
Group No.: 10

Submitted to : Dr . Vipan Kumar

(assistant professor of law)

TABLE OF CONTENT
A.INTRODUCTION

B. Canon Of Taxes
C. Meaning Of Canon Of Taxes

D. Types Of Canon Of Taxes

D.1. Canon of equality or equity

D.2. Canon of economy

D.3. Canon of certainty

D.4. Canon of convenience

E.Other Tax Canons

E.1. Canon of productivity

E.2. Canon of elasticity

E.3. Canon of simplicity

E.4. Canon of diversity

F. Characteristics of Canons of Taxation:

G. Conclusion
INTRODUCTION

Taxation is a payment made by natural persons or legal entities that is imposed by the governme
nt, for which no goods or services are provided directly in return, so taxes are the amount of mon
ey paid by people who are not directly connected to the profit of persons gained from the provisi
on of a specific good or service.Before the early 1930s, the idea that governments should balance
their budgets was widely acknowledged. The primary justification for taxes, though, was to pay
for government spending. Governments, of course, had sometimes resorted to borrowing to pay f
or their expenditures and government borrowing was fairly high during certain times of war.

Government borrowing may come from the private sector or from outside the country. Governm
ents can borrow from the country's central bank, as an alternative. Even a lot of taxation goes top
pay off the debt of the State and the interest accumulates.

The government has used the taxes collected to conduct other tasks. Most of them comprise:

Expenditure on war, law enforcement and public order, land security, economic infrastructure
(roads, legal tender, contract regulation, etc.), public works, social engineering and the functionin
g of the government itself. Governments also make use of taxes to finance healthcare and Public

resources. Such programs may include education systems, health care systems, older people's pe
nsions, unemployment insurance, and public transport, electricity, water and waste management
systems, community utilities, etc.
Policy spending in recent years has also been funded by the selling of publicly held properties.
Nevertheless, while asset sales have become an significant source of funds for the government,
they are inherently limited, as assets can only be sold once. Governments therefore still need to c
ollect much of the revenue needed to fund their spending through taxing or charging.By taxing
or paying Government facilities directly (user fees). Governments use various forms of taxes and
vary the tax rates, thereby spreading the tax burden among individuals or classes of the
population engaged in taxable activities, such as corporation, or redistributing resources among
individuals or classes within the population. 1

1 http://www.mcrhrdi.gov.in/93fc/week4/PA%20-%2026%20&%2027%20(Sri%20M.Srinivas,IRS).pdf
The purpose of modern social security schemes is to help the elderly, the disabled or the aged
individual by taxation on those who are still employed. Furthermore, taxes are applied to finance
humanitarian assistance and military projects, to affect the economy's macroeconomic output or
to alterConsumption patterns or job trends within an economy, by making certain transaction gro
ups more or less desirable. There is no question, however, that most government spending must
be charged by the taxation mechanism and it is fair to see this as the primary role of taxation.
And there has also been a number of subsidiary taxation targets. 2

Taxation is traditionally not only a way of moving money to the government to spend it on
meeting public spending or increasing government revenue, but taxes have now been a way of
lowering competition in the private sector, redistributing income and wealth in communities in
countries.It is also a means of economic growth and of playing a very important role in the case
of income stabilisation, industrial home security from foreignindustries.
Taxation helps find solutions to some of the economic challenges facing the economy, such as
unemployment, inflation and depression.Taxation provides a solution to certain economic issues,
but not alone, as several other fiscal instruments are also available. They work together to solve
this economic problem. Countries exercise power of jurisdiction over their people by levying
taxes.

Canons of Taxation:

Tax rates are concerned with the administrative aspects of a company.

They apply to the cost, number, collection method and a tax collection. In other words, the featur
es or attributes a good tax has to possess are defined as tax fees. It should be remembered that the
rates apply to the characteristics of an individual tax, and not to the entire tax system.

A good tax structure must provide an appropriate mix of all tax forms with varying rates.

According to Adam Smith, on the administrative side of public finance there are four tax fees or l
imitations which are still known as classics.3

2 https://www.toppr.com/ask/question/which-of-the-following-set-of-the-canons-of-taxation-has-been-
made-the-part/
3 Adam Smith, The Wealth of Nations: A Translation into Modern English, ISR/Google Books, 2015. Book 5

(Government Finances: Public Expenditure, Taxation and Borrowing), pages 423, 429
Meaning of Canons of Taxation

By taxes we simply mean the characteristics or attributes that a successful tax system requires to
have. Tax rates are often related to the administrative aspect of a company. Adam Smith first
invented, in 1776, the tax concepts or payments. Modern governments also in the 21st century
apply Smithian tax rates when implementing and levying taxes.

2. Types of Canons of Taxation

In this sense, his canons of taxation are indeed ‘classic’. His four canons of taxation are:

(i) Canon of equality or equity

(ii) Canon of economy

(iii) Canon of certainty

(iv) Canon of convenience

i. Canon of Equality:

The parity fee states that the tax burden has to be evenly or reasonably distributed among
taxpayers. That sort of equity, though, violates fairness because not all taxpayers have the same
opportunity to pay tax. The wealthy have more taxes to pay than the poor ones. Justice then
allows a individual with an increased capacity for payment to have to pay high taxes.

If anyone is asked to pay taxes based on their capacity, then all taxpayers 'sacrifices will be the
same. That is the root of the canon of (sacrifice) equality. Taxes would be levied to create
equality in slaughter, in compliance with the concept of payment power.

In the light of this, both sides of the same coin are the equality fee and the skill fee.4

4 http://www.legalservicesindia.com/articles/canons.htm
ii. Canon of Certainty:

The tax a person has to pay must be real, and not arbitrary.

Following on from A. Smith, for the taxpayer and for others, the date of payment, the method of
payment, the sum to be paid, that is, the tax duty, must be simple and evident.

Therefore other items are protected by the canon of certitude. Both the taxpayer and the tax
collection agency need to be secure.Not only do taxpayers know when, where, and how much
taxes payable. In other words, obligation certitude must be understood beforehand.

In the same way, the tax that the government expects to raise over a certain period of time
always needs to be certain. Some confusion on these points can cause several problems.5

iii. Canon of Economy:

This fee means the expense of obtaining a fee will be as low as possible. Any tax that includes
high administration costs and rare assessment delays and high tax collection should be absolutely
avoided. Following on from A.Smith: "All taxes must be structured both to eliminate and keep
out of the hands of people as little as possible, beyond what contributes to the public coffers of
the State”

iv. Canon of Convenience:

To order to give full convenience not only to the taxpayer, but also to the government, taxes
should be collected and processed. It will also be as painless and unpainful as possible. "For all

taxes," stresses A. Smith, "the taxpayer must be paid at the moment or in the form he is most like
ly to pay it."

5 http://www.legalservicesindia.com/articles/canons.htm
This is why farm income tax is collected after harvest. Employees pay tax at source after
compensation receipt. Of course modern governments do not always honor these tax rates
faithfully. Hence these tax rates are simple and classic.

Modern economists have added more in the list of canons of taxation.6

These are:

(v) Canon of productivity

(vi) Canon of elasticity

(vii) Canon of simplicity

(viii) Canon of diversity.

i. Canon of Productivity:

The taxes have to be competitive or efficient, according to a wellknown classical economist in th

e field of public finance, Charles F. Bastable. This means that there must be substantial income
yield from every tax. This canon further specifies that only those taxes which do not impede the
community's successful effort should be levied. A tax is said to be productive only when it acts as
an incentive for production.

ii. Canon of Elasticity:

The canon of elasticity is accorded considerable importance by modern economists. This tax mea
ns that in output a tax has to be flexible or elastic. It has to be collected in such away that the tax
rate can be adjusted according to the needs of the situation.It must be able to raise as many taxes
as possible if the government needs funds without having negative effects by increasing tax rates
.This fee is covered by income tax.

6 https://www.brainkart.com/article/Canons-of-Taxation_1608/
iii. Canon of Simplicity:

For individuals, each tax must be clear and understandable, so that the taxpayer can measure it
without needing recourse to tax consultants. A complex tax and a complicated tax can create
undesirable sideeffects. If the tax system is complex you might motivate taxpayers to evade
taxes.A complex tax structure is expensive, in the sense that even the most truthful and educated
taxpayers would need to seek tax advisors 'advice. This tax scheme, in the end, has the ability to
create corruption in society.

iv. Canon of Diversity:

Taxes should be complex. This means that the tax system of a nation must be complex or
flexible, instead of having one or two taxes. Diversification into a tax system would demand

that most sections of the population participate. If a single tax structure is implemented, the
national finance ministry will be forced to pay only one business, leaving large numbers of
citizens unchanged.Obviously in some taxpayers the effect of this tax reform would be greater.

A complex or diversified tax system may require the distribution of the tax burden among the
large population, resulting in an overall low degree of taxation. Such tax rates are regarded as

important conditions for a sound tax policy. Unfortunately, real-world views of such

an ideal tax structure are uncommon. But a tax authority will ceaselessly continue to maintain pr
evious tax rates so it can create an almost ideal tax structure.

Characteristics of Canons of Taxation:

A good tax system (it can be almost ideal) must meet the following characteristics:
I. The distribution of the tax burden must be equal, so that everyone has to pay for their "fair
share." This is regarded as a "equity" rule based on two principles: horizontal equity: equal must
pay equal taxes; and vertical equity: unequal taxes should be paid to those not equal.

That is, the wealthy have more taxes to pay

Ii).Yet equity does not obstruct the quality of production, so the obligations are given to correct
the inefficiencies. This "performance" criterion states that taxes should be raised at the lowest
cost to taxpayers so that money can be distributed without distortion by the tax system.

iii) The two other requirements are 'flexibility' and 'transparency' A successful tax structure
allows for tax rate adjustments if conditions alter the structure. Furthermore, a successful tax
must bestraightforward in the sense that taxpayers need to know what they pay for the services
they provide.

iv)A good tax structure would make it easier to use the tax policy to achieve the objectives of

(a) stability (b) economic development. Flexibility must be built into the tax system to achieve
those objectives. It follows from the previous debate that the taxation has the following objective
s: Increase government revenue Redistribute income and resources from rich to

poor from foreign competition to protect domestic industries Foster social well-being.

CONCLUSION

Canons of Taxation Certain values that are its characteristics should be followed by a successful
tax system. Therefore, a good tax system is founded on certain concepts. Adam Smith has set out
four essential tax concepts. Various other economists proposed a few more. Those values which
should be enforced by a good tax system are called tax canons.

Conclusion To conclude, we may argue that the instrument of taxation is of great importance on
• growing the level of economic activity — regressive taxation

• reducing income

inequality — incremental taxation

• fostering economic development — Funds could be reinvested Social Welfare Goal — Tax pay
ing helps to minimize the difference between the haves and the poor.As it helps leverage the surp
lus revenue from the haves and reinvest them for public benefit, it helps to meet the has-
nots through these surplus funds.