ICFAI LAW SCHOOL

THE ICFAI UNIVERSITY, DEHRADUN

“ANALYSIS OF CANONS OF TAXATION BY ADAM

SMITH”

SUBMITTED TO: MS. STUTI TIWARI

FACULTY, PRINCIPLES OF TAXATION LAWS

SUBMITTED BY
ADITYA KUMAR
ENROLLMENT NO. 16FLICDDN01006
BBA.LLB.(HONS)
The Canon of taxation would mean the good policies, principles, or laws that should be
present or should be followed by the taxing authorities while formulating any taxation policy. It
basically means the characteristics or qualities which a good tax system will possess. Adam
Smith gave four canons in his famous book named ‘Wealth of Nation’ in the year 1776.

The 4 principles of Adam smith are as followed:-

 Canon of equality or ability

 Canon of certainty,
 Canon of economy
 Canon of convenience.

1. CANON OF EQUALITY: The principal basically says that the taxes must be
applied on all the individual equally but in the real world scenario it is not possible to
practice the principle of equality as one person would not be incapacity to pay the same
amount of tax as that of another, and if the government would and if the government
would lower the tax slabs equally for everyone the rich people would get undue benefits,
thus the principle of equity comes into picture wherein the taxes should be collected on
the basis of the income of an individual and not be the same for everyone.
2. CANON OF CERTAINTY: Adam Smith stated that ‘the tax which individual is bound
to pay ought to be certain, and arbitrary’. The amount of tax, the manner of payment, and
the person to whom it is to be paid shall be certain so that the individual shall be
informed well in advance about the amount that is to levied as a tax. This principle put
makes the citizen aware and help them in avoiding any kind of exploitation from the
government that could occur due to the lack of a predetermined ratio
3. CANON OF CONVENIENCE: According to Smith, “Every tax ought to be levied at
the time, or in the manner, in which it is most likely to be convenient for the contributor
to pay it”. The payment and manner of payment of taxable amount must be convenient to
the person paying the same and for the government also.
However, if an agriculture tax is asked to be paid before the harvesting time where from
will the famer pay it similarly if the tax on salary is levied at any time before the salary is
 credited how will the employ pay it. This is the reason why a reasonable time frame is
given to tax payer for filing their Income Tax Returns.

4. CANON OF ECONOMY: The canon of economy provides that the expenses of

collection of taxes and administration of such taxes should not be excessive. It must be as
minimal as possible, and any high leaving tax activity should be avoided. If we see the
current taxation policy of the government then they imposes high taxes on the alcohol
and cigarettes in my opinion it is a god policy framework, serving the society by
protecting the health and generating revenue.