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ASSIGNMENT OF
ECONOMICS

Name: Shambhavi Singh

Enrolment no.: A46011122001

Programme: BA;LL.B(H)2022-27

Semester: Third
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Certificate
This is to certify that SHAMBHAVI SINGH of B.A.,LL.B (2022-
2027) Third Semester is a bonafide student of AMITY LAW
SCHOOL. This project has been successfully completed this under
the guidance of her political science teacher
Asst. Prof. Smita singh

___________________________
Professor's signature
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Acknowledgement
Before presenting my project I would like to express my special thanks of gratitude to my
teacher and Programme Leader "Asst. Prof. Smita singh" who gave me the golden
opportunity to do this wonderful assignment on the topic "TAX" which also helped me in
doing a lot of research and I came to know about so many new things.

I am really thankful to them.

Secondly I would like to thank my parents and friends who helped me a lot in finishing this
project within the limited time.
I am making this project not only for marks but also for increasing my knowledge.

Thanks again to those who helped me…

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Tax

INTRODUCTION
Taxation in economics serves various crucial roles. Primarily, it is a
fundamental tool for government revenue generation, funding public goods
like infrastructure, education, healthcare, and defense. The structure and
amount of taxes directly impact a government's fiscal capacity.

Taxes also function as a means of income redistribution, with progressive

tax systems aiming to reduce income inequality by taxing higher-income
individuals at higher rates. Conversely, regressive tax systems can
exacerbate income disparities.

Economic efficiency is influenced by tax policies that shape incentives for

work, investment, and consumption. Distortions caused by taxes can alter
individual and firm behavior, impacting work hours, consumer choices, and
investment decisions.

Governments use taxes for market intervention, addressing externalities or

market failures. For instance, taxes on pollution aim to internalize
environmental costs, while taxes on goods like tobacco discourage
consumption for public health reasons.

Taxation is a vital component of fiscal policy, alongside government

spending. Changes in tax rates and structures can be employed to stimulate
or cool down the economy, with tax cuts during economic downturns to
boost spending and investment.

Taxation also has behavioral effects, influencing individual and corporate

actions. Tax credits and deductions can encourage specific activities, such
as research and development or the adoption of energy-efficient
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technologies. Conversely, high corporate taxes may deter businesses from

operating in a particular jurisdiction.

Effective tax systems hinge on compliance and administration.

Governments aim to design clear, easy-to-administer tax policies to
minimize opportunities for tax evasion and avoidance.

In summary, taxation is a complex economic phenomenon impacting

government finance, income distribution, economic efficiency, and market
dynamics. The thoughtful design and implementation of tax policies are
essential for achieving desired social and economic outcomes.

Taxes can be classified in various ways based on different criteria, such as

the entity being taxed, the purpose of taxation, or the method of assessment.
Here are some common classifications of taxes:

1. Based on the Entity Being Taxed:

Individual Income Tax: Levied on the income of individuals.
Corporate Income Tax: Imposed on the profits of businesses.
Capital Gains Tax: Applied to the profits earned from the sale of assets.
Property Tax: Assessed on the value of real estate or personal property.
Consumption Tax: Imposed on the purchase of goods and services.

2. Based on the Purpose of Taxation:

Revenue Taxes: Levied with the primary purpose of generating
government revenue (e.g., income taxes, sales taxes).
Regulatory Taxes: Imposed to regulate certain activities (e.g., excise
taxes on alcohol, tobacco, or fuel).
Redistributional Taxes: Aimed at reducing income inequality (e.g.,
progressive income taxes).

3. Based on the Method of Assessment:

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Direct Taxes: Levied directly on individuals or entities and cannot be

passed on (e.g., income taxes).
Indirect Taxes: Imposed on transactions and can be passed on to
consumers (e.g., sales taxes, value-added taxes).
Ad Valorem Taxes: Based on the value of a good or service (e.g., property
tax).
Specific (or Excise) Taxes: Imposed on a specific quantity of a good or
service (e.g., per unit taxes on cigarettes).

4. Based on Economic Impact:

Proportional Tax: Imposes the same percentage of tax on all individuals
or entities, regardless of income (flat tax).
Progressive Tax: Imposes a higher percentage of tax on higher levels of
income.
Regressive Tax: Imposes a higher burden on lower-income individuals as a
percentage of their income decreases (e.g., sales tax).

5. Based on Time of Assessment:

Direct Taxes: Assessed and paid directly by the taxpayer.
Indirect Taxes: Collected by an intermediary (like a retailer) and passed
on to the government.

6. Based on Administration:
Central Taxes: Collected by the central government.
State Taxes: Collected by state governments.
Local Taxes: Collected by local authorities.

These classifications provide a framework for understanding the diverse

nature of taxes and how they function within the broader economic context.
Tax systems often incorporate a combination of these classifications to
meet various fiscal and policy objectives.
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Canons of Taxation

The canons of taxation are principles or guidelines that serve as a basis for
designing and evaluating an effective and equitable tax system. These
canons were first introduced by the economist Adam Smith in his seminal
work, "The Wealth of Nations." The canons are essentially criteria that a
good tax system should ideally meet. The traditional canons of taxation
include:

1. Canon of Equity or Justice:

- This canon suggests that a tax system should be fair and equitable. It
implies that individuals and businesses in similar economic situations
should be treated similarly. Equity can be achieved through progressive
taxation, where the tax rate increases with the taxpayer's income.

2. Canon of Certainty or Clarity:

- Taxes should be clear and certain, both in terms of when they are due
and how they are calculated. Taxpayers should be able to understand the tax
laws and anticipate their tax liability. Certainty in taxation contributes to
economic stability.

3. Canon of Convenience or Simplicity:

- A tax system should be convenient for taxpayers to comply with and for
the government to administer. Simplicity in tax laws and procedures
reduces compliance costs and administrative burdens. Complex tax systems
can lead to confusion, errors, and increased enforcement costs.

4. Canon of Economy or Efficiency:

- The cost of collecting taxes should be minimized. The administrative
expenses involved in tax collection should be reasonable and not outweigh
the revenue generated. An efficient tax system ensures that resources are
used effectively in the collection process.
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5. Canon of Productivity or Fiscal Adequacy:

- Taxes should be productive and yield sufficient revenue to meet the
government's expenditure requirements. The tax system should be capable
of generating enough funds to cover public spending needs without creating
budget deficits.

While these canons provide a useful framework, it's essential to note that
they are not always easy to achieve simultaneously. There can be trade-offs
between these canons, and the design of a tax system often involves
balancing competing goals. Additionally, modern discussions on taxation
may incorporate additional considerations, such as the impact of taxes on
economic growth, international competitiveness, and environmental
sustainability.
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Conclusion

In conclusion, the topic of tax is a multifaceted and critical aspect of economics and
public finance. Taxes play a pivotal role in generating government revenue, funding
essential public goods and services, and shaping economic behavior. The design and
implementation of tax policies are guided by various principles and canons, aiming
to achieve objectives such as equity, certainty, convenience, economy, and
productivity.

Taxes serve not only as a means of revenue generation but also as tools for income
redistribution, market intervention, and economic regulation. The impact of taxes
extends to individual and corporate behavior, influencing decisions related to work,
investment, consumption, and compliance.

A well-designed tax system is essential for maintaining economic stability,

promoting fairness, and ensuring the fiscal sustainability of government operations.
However, achieving a balance among competing goals and navigating potential
trade-offs is an ongoing challenge for policymakers.

As economic landscapes evolve, discussions around taxation continue to expand to

include considerations of international competitiveness, environmental
sustainability, and the broader impact on economic growth. The study and analysis
of taxation remain crucial for economists, policymakers, and citizens alike, as tax
policies have far-reaching implications for the overall health and functioning of
economies around the world.
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References

https://www.investopedia.com/terms/t/taxes.asp#:~:text=Investopedia%20%2F
%20Joules%20Garcia-,What%20Are%20Taxes%3F,as%20Social%20Security
%20and%20Medicare.

https://www.geeksforgeeks.org/canons-of-taxation/

D.D. Chaturvedi, Macro Economic Theory, International Book House Pvt Ltd, New
Delhi, 2012

S.K. Mishra, and V.K. Puri, Modern Macro-Economic Theory, Himalaya Publishing
House, New Delhi, Latest Edition