In addition to the above four canons,the otther economists have added a few more which are as under: e Canon of productivity. While taking a decision about the amount of work effort that a person should put in or how much investment should he undertake under risky circumstances, he must know with certainty the definite amount of the tax payable by him on his income. In his words: 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. They should never be used when it is possible to use means that do not check production. Canon of Convenience : According to this canon, tax should be collected in a convenient manner from the tax payers.
This is the time when cultivators can conveniently pay. This lowers the price of land. If the tax is complicated, it will harass the tax payer and instigate him to evade tax. First is the concept of horizontal equity. It is unknown and unrecognized by Nature. Discovery can give no right of ownership. An unjust tax will always face sharp unwillingness on the part of the tax payers to pay and they will try to evade them, Every new tax must have a justification to create a feeling of acceptance in the mind of the tax-payers.
It is believed that if the canon of certainty is not present, it leads to tax evasion. Smith instead argues in favor of a land-value tax without penalty for improvements, because such a tax is based on benefits provided by government in that area, but does not discourage investment. He pays them by little and little, as he has occasion to buy the goods. The master budget is the aggregation of all lower level budget produced by a company's various functional areas and, also includes budgeted financial statement, a cash forecast, and a financing plan. Canon of Flexibility It should be easily possible for the authorities to revise the tax structure both with respect to its coverage and rates, to suit the changing requirements of the economy. On this ground, indirect tax like sales tax is more economical than income tax. Every tax ought to be levied at the time, or in the manner, in which it is most likely to be convenient for the contributor to pay it.
However, too much multiplicity of taxes is also to be avoided. The concept of vertical equity is concerned with how people with different abilities to pay should be treated for the purposes of division of tax burden. Although people usually do not like taxes, and governments can become so corrupt and misdirected that people revolt against paying taxes at all, most recognize the basic need for some public services, funded by some sort of taxation. The housing industry, for example, should not be burdened with heavy taxes in a year when it is profitable, when just the year before, it suffered large losses because of economic cycles. There is a difference between the definition of deficit financing adopted by Western Countries and that adopted by the G. Take for instance the case of Hely-Hutchinson where a taxpayer claimed that he was entitled to be treated in accordance with certain guidance.
It would also add to legal complications. Only when there is economy in tax collection, that the tax revenue realized can be spent usefully. Canon of Diversity: Diversity or variety in Tax system is essential to cover all categories of income earner and to make the tax structure wide base. Horizontal equity suggests that in the matter of taxation, equal treatment should be meted out to people in equal economic circumstances, which means that they should pay equal amount of taxes. It is also not possible to devise a tax system that may satisfy all the cannons of taxation in an adequate measure.
This canon has given rise to two theories: i Equality of Sacrifice Theory: It means that the burden of taxation should involve an equal sacrifice for every individual. The revenue will not be sufficient, nor will it be fair, because it will not touch a large number of people. Inequalities arise mostly from taxing improvements along with land. Taking rent for public use through taxation would prevent all this. To the above four canons of Adam Smith, modern writers have added few more canons.
Therefore, it would make no sense to impose certain taxes, if it is difficult to administer. The sacrifice of all citizens must be equal. Let us consider what form of taxation best fits these conditions. These are helpful for getting students to think critically about the design of tax systems. For example, if the government needs more income at time of crisis, the tax should be capable of yielding more income through increase in its rate.
By that time, the federal income tax had expanded to the middle class, and this gave both the populace and tax collectors a broader period over which to spread the filing of returns. The expence of government to the individuals of a great nation is like the expence of management to the joint tenants of a great estate, who are all obliged to contribute in proportion to their respective interests in the estate. By one estimate, over 50 percent of all cigarettes consumed in New York State are smuggled in from other locales. It is not advisable for the government to depend upon a single source of tax, it may result in inequity to the certain section of the society; uncertainty for the government to raise funds. Notably, Thomas Hobbes preferred consumption taxes. Rather than award individuals such a huge privilege, most communities build roads collectively, financing them through taxation. Only then, and not until then, will labor get its full reward, and capital its natural return.