According

to Justice Holmes, the

price to the Govt. for living in a
civilized society is the tax.
According to Taylor, taxes are the
compulsory payments to
Government without expectation of
direct benefit to the tax payer.

CANON OF TAXATION

, Adam Smith gave four principle of

taxation which he called Canons of
Taxation.
Some other writers have also prescribed
some other principles/canons.

The subjects of every state ought to

contribute towards the support of the
government, as nearly as possible, in
proportion to their respective abilities; that
is in proportion to the revenue which they
respectively enjoy under the protection of
the state. This canon tries to observe the
objective of economic justice.

This canon describes that The tax which the

individual is bound to pay ought to be certain
and not arbitrary. The time of payment, the
manner of payment, the quantity to be paid,
ought all to be clear and plain to the
contributor and to every other person, the
tax-payers should not be subject to
arbitrariness and discretion of the tax
officials, in which case there will be a scope
for a corrupt tax administration.

This canon takes into consideration the

interest of the taxpayer the view of payment
of tax. It emphasizes that the mode and
timings of tax payment should be, so far as
possible, convenient to the tax-payer. This
canon recommends that unnecessary trouble
to the tax-payer should be avoided;
otherwise various ill-effects may result

Every tax has a cost of collection. It is

important that the cost of collection should
be as minimum as possible. It will be useless
to impose taxes which are too widespread
and difficult to administer. Productivity of
taxes has been given important in this canon.

5. Canon of Productivity:
It is also called the canon of fiscal adequacy.
According to this principle, the tax system
should be able to yield enough revenue for
the treasury and the Government should not
be forced to resort to deficit financing. The
canon is thus also called canon of adequacy.

6. Canon of Diversity:
In line with canon of productivity, canon of diversity
also gives importance to adequate collection of tax
through diversification. Thus it stresses to the fact that
it will not be a happy situation if the state depends
upon few revenue inequitable as between different
sections of the society. On the other hand, if the tax
revenue comes from diversified sources, then any
reduction in tax revenue on account of any one is
likely to be very small on total tax revenue. However,
too much multiplicity of taxes is also to be avoided.
That leads to unnecessary cost of collection and
violates the canon of economy.

7. Canon of Simplicity:
The tax system should not be too complicated.
That makes it difficult to administer and
understand and breeds problems of difference in
interpretation and legal disputes

8. Canon of Flexibility:
It should be flexible so that it becomes possible for
the authorities without undue delay, to revise the
tax structure, both with respect to its coverage and
rates, to suit the changing requirements of the
economy and of the treasury.

9. Canon of Social Objectives:

In this canon control and achieving social goal is
emphasized. According to this canon, charging and
collecting taxes always need to be in line with
social and economic policy of the Government.

10. Canon of Functional Efficiency:

Tax policy needs to be efficient, operative and
objective. According to Prof. Dew, the tax laws
and regulations must be such as easily
understandable to the assesse, easily
administraitable and administration needs to be
objective in implementation and it should adhere
to economy