Term of the Day - 21 March 2024

Today’s Term is “Canons of Taxation”.

The "Canons of Taxation" are a set of principles or criteria formulated by economist Adam Smith in the 18th century to guide the design and evaluation of tax systems. These canons serve as fundamental guidelines for assessing the efficiency, fairness, and effectiveness of taxation policies. The four canons of taxation are:

1. Canon of Equity: Taxes should be equitable and fair, with each taxpayer bearing a burden in proportion to their ability to pay. This principle aims to ensure that the tax system does not unduly burden the less affluent members of society.

2. Canon of Certainty: Taxpayers should have certainty regarding the amount, timing, and method of tax payments. Clarity and predictability in tax laws and regulations help taxpayers plan their financial affairs and minimize compliance costs.

3. Canon of Convenience: Taxation should be convenient for taxpayers, minimizing administrative burdens and compliance costs. Taxes should be collected in a manner that is convenient for taxpayers and does not impose undue hardships or inefficiencies.

4. Canon of Economy: Tax administration should be efficient and economical, minimizing administrative costs and distortions to economic behaviour. Taxpayers and governments alike benefit from a tax system that operates with minimal administrative overhead and compliance burdens.

These canons provide a framework for evaluating tax policies and systems, guiding policymakers in designing tax laws that balance efficiency, fairness, and administrative feasibility.