CANONS OF TAXATION
PRESENTED BY,
ROSANTO ANTO
ASSISTANT PROFESSOR
MEANING OF CANONS OF TAXATION
By canons of taxation we simply mean the characteristics or qualities
which a good tax system should possess.
In fact, canons of taxation are related to the administrative part of a
tax.
Adam Smith first devised the principles or canons of taxation in 1776
in his book “ W e a l t h o f N a t i o n s ” .
CANONS OF TAXATION
1. Canon of equality or equity
2. Canon of certainty
3. Canon of economy
4. Canon of Convenience
5. Canon of productivity
6. Canon of elasticity
7. Canon of simplicity
8. Canon of Diversity
9. Canon of fiscal adequacy
10. Canon of flexibility
1. CANONS OF EQUALITY OR EQUITY
• It states that the burden of taxation must be distributed
equally or equitably among the taxpayers.
• However, it might be a little ironic to fit equality among
different sets of people like the rich and poor, privileged, or
underprivileged.
• Rich people can pay more taxes than poor people pay fewer
taxes.
2. CANONS OF CERTAINTY
The tax that an individual must pay should be certain and
not arbitrary.
A taxpayer should be certain about the amount of
taxes one should pay, when to pay, how to pay, and to
whom to pay and should also be certain about the
consequences of non-payment
3. CANONS OF ECONOMY
This canon implies that the cost of collecting, or payment of tax
should be as minimum as possible to make the process
economical.
Any tax that involves high administrative costs accompanied by
unusual delays in assessment should be avoided.
Tax payers will have an aversion towards tax payments if the
cost of remitting taxes is high.
4. CANONS OF CONVENIENCE
Taxes should be levied and collected in such a manner
that it provides the greatest convenience not only to the
taxpayer but also to the government.
Convenience factor can boost the levels of tax
compliance levels of individuals.
4. CANONS OF CONVENIENCE
The payment and method of payment of the taxable amount
must be easy for the individual paying it.
EXAMPLE: Tax Deducted at Source (TDS). TDS means
“deduction of tax from the source it has been generated”.
5. CANON OF PRODUCTIVITY
According to a well-known classical economist in the field of public
finance, Charles F. Bastable, taxes must be productive or cost-
effective. This implies that the revenue yield from any tax must be a
sizable one and be used optimally.
It should be used towards productive purposes Misuse of funds
could be a deterrent to the taxpayer’s ability to pay taxes.
6. CANON OF ELASTICITY
This canon implies that a tax should be flexible or elastic in nature
and not rigid.
• It should be levied in such a way that the rate of taxes can be
changed according to the need or demand of the situation.
• The system of taxes should be governed in a manner that they
could be increased or decreased based on the economic scenario.
6. CANON OF ELASTICITY
EXAMPLE: The government provided relief measures such as extended
compliance schedules and tax breaks in select cases.
The death of the individual should be within six months of the date of
testing positive.
The government extends Aadhaar-PAN linking due date by three
months.
7. CANON OF SIMPLICITY
Every tax must be simple so that people understand the process
easily.
A tax payer should be able to calculate it without taking the help
of tax consultants or the aid of any external source.
A complex, as well as a complicated tax, is bound to yield
undesirable outcomes.
8. CANON OF DIVERSITY
Canon of diversity refers to diversifying the tax sources to be more
prudent and flexible.
Canon of diversity states that it is better to collect taxes from
multiple sources rather than concentrating on a single tax source
A variety of taxes could also spread the burden of taxes over a larger
spectrum
9. CANON OF FISCAL ADEQUACY
This canon emphasizes that a tax should bring in a
substantial amount of money to the Treasury
The policy-making bodies formulate several long terms and short-
term plans for the betterment of the nation.
The tax system should be able to generate sufficient funds to meet
the fiscal demands of the government.
10. CANON OF FLEXIBILITY
Canon of flexibility means that the entire tax system should be
flexible enough that the taxes can easily be increased or
lowered, in accordance with the government’s needs.
Moreover changes/amendments need to be incorporated into
the act so that it suits the needs of the economic scenario
Flexibility is the ability to make changes to meet the ever-
changing economic environment.
THANK YOU
