Other Canons of Taxation
Economic science has progressed much since the days of Adam Smith. Later writers have added to his canons. The additions are:—
- Canon of Productivity. This canon emphasizes that a tax should bring in a substantial amount of money to the State. After all, the main object of the taxing authority is to secure funds. Therefore, a tax which does not yield a fair income is useless. It is greatly better to have a small number of taxes which capitulates high-quality income instead of numerous taxes capitulating a little.
- Canon of Elasticity. It points out that a tax ought to routinely bring in additional income as the country's population or income rises. There should be an automatic link between the needs of the State and the resources of the people. If in an emergency an increase in the rate of the tax brings in increased revenue, the tax is elastic.
- Canon of Simplicity. It argues that the tax system should be simple. Otherwise, there would be confusion and, worse still, corruption. During the war and after, certain taxes on the sale of cloth and other essential supplies in India resulted in corruption, mainly because they lacked in simplicity.
- Canon of Variety. It is also necessary that the tax system of a nation must be branched out. Reliance on just a few taxes is risky. The revenue will not be sufficient nor will it be fair, because it will not touch a big number of people. In order to be just, a tax system must be broad-based. In order to be adequate, it must be diversified, having a wide coverage over commodities and persons.
- Canon of Flexibility. 'Flexibility' in taxes is different -from 'elasticity' mentioned earlier as a canon. Flexibility connotes the absence of rigidity in the tax system. An elastic tax swiftly fine-tunes to the fresh conditions; on the other hand, elasticity means that income can be increased. Presence of flexibility is a pre-condition for elasticity. Requirement of elasticity in a tax can source monetary problems to a nation.
These are some important principles of taxation.
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Adam Smith’s Canons of Taxation