Canon of taxation simply means the qualities or characteristics a good tax system should possess. The canons were developed so as to have a uniform tax system. They were first enunciated by Adam Smith in his book ‘Wealth of Nations’ published in the year 1976. Adam smith presented 4 canon of taxation viz; canon of equality, certainty, convenience and economy. New writers added the following five; canon of productivity, elasticity, simplicity, diversity and flexibility. Subsequently, this article would briefly examine the various canons of taxation.
To begin with, the canon of equality is one of the most important canonsof taxation. As the name suggests, this canon does not imply that tax payers should be made to pay the same amount as tax; rather it means that taxpayers should be made to pay the amount of tax that is proportionate to their income. Simply put, the higher a person’s income, the higher the tax that should be pay and vice versa. The underlying factor here is the ability to pay.
A good tax system is one that the tax payer would be aware of the amount that is to be paid, how it is to be paid and the time it is to be paid beforehand. This is what the canon of certainty entails. In the words of Adam Smith, “the tax which individual is bound to pay ought to be certain and not arbitrary.
Canon of convenience simply means that the time and mode of payment of taxes ought to be convenient for the tax payers. This implies that the tax authorities ought to fix a time that the tax payers would have gotten the revenue from which the tax is to be deducted. For instance, you don’t expect a taxpayer to pay income tax at a time that he has not received any income. If taxes are not convenient, taxpayers would not be willing to pay.
The canon of Economy indicates that, the amount that is expended in the collection of taxes should be lesser than the taxes collected. This is so because if the amount expended in the collection of tax is more than the amount generated by the collection of tax it would defeat the underlying purpose of taxation which is to generate revenue for the government.
A tax system that would be referred to as effective is one that should be able to generate a huge amount of money for the state. The proponentsof this canon are of the opinion that it is better to have fewer taxes with more returns than a lot of taxes with lesser returns. This is what is referred to as the Canon of Productivity.
Also, taxes should be elastic in the sense that it should be flexible to adjustments incase the government needs to increase the tax rate without incurring extra expenses in the collection of the tax.
Furthermore, a good tax system should be as simple as possible. This is so as not to cause unnecessary confusion to the tax payers. Also, when a tax system is complex in natures it gives room for corruption in the system.
The canon of diversity means that the tax system of the state should be diversified in that they don’t rely on little type of taxes alone. Relying on just few type of taxes might not cover a lot of persons in the tax net and by implication would not generate as much as revenue as possible.
Lastly, the Canon of Flexibility simply means that a good tax system should not be rigid i.e. it should be able to adjust to new conditions when the time comes. This canon is different from elasticity as a canon; as flexibility indicates that a tax system should be able adapt to changes while elasticity says it should be able to adapt to increase.
In conclusion, the canons of taxation are developed so as to ensure a synergy between the taxpayers and authorities. If all the above canons are effectively adhered to by a state, the tax system would be efficient.