Canons of taxation

Meaning of canons of taxation, Canons of taxation, Finance Bill, Finance Act, Difference between Finance act and Bill

1. PREPARED BY: C A ANNIE STEPHEN
MS. JUNITTA STEPHEN
CANONS OF TAXATION

2. 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 Wealth of Nations

3. CANONS OFTAXATION
(1) Canon of equality or equity
(ii)Canon of certainty
(iii)Canon of economy
(iv)Canon of convenience
(v)Canon of productivity
(vi)Canon of elasticity
(vii)Canon of simplicity
(viii)Canon of diversity
(ix)Canon of fiscal adequacy
(x)Canon of flexibility

4. CANONS OF EQUALITY OR EQUITY
•Itstates that the burden of taxation must be
distributed equally or equitably among the
taxpayers.
•However it might be a little ironical to fit equality
among different sets of people like the rich and
poor, privileged or underprivileged.
•Rich people are capable of paying more taxes than
poor people pay less taxes

5. CANONS OF CERTAINITY
•The tax which an individual has to 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, t whom to pay and should also be certain
about the consequences of non-payment

6. CANONS OF ECONOMY
•Thiscanonimplies that the cost of collecting
or payment of tax should be as minimum as
possible so as to make the process economical
•Any tax that involves high administrative cost
accompanied with unusual delays in
assessment should be avoided.
•tax payers will have an aversion towards tax
payments if the cost of remitting taxes are
high.

7. CANONS OF CONVENIENCE
Taxes should be levied and collected in
such a manner that it provides the
greatestconveniencenot only to the
taxpayer but also to the government.
Covenience factor can boost the levels
of tax compliance levels of the
individuals

8. CANON OF PRODUCTIVITY
According to a well-known classical economist in
the field of public finance, Charles F. Bastable,
taxes must beproductiveor cost-effective.
This implies that the revenue yield from any tax
must be a sizable one and also be put to use
optimally.
It should be put to use towards productive purpose
Misuse of funds could be a deterrent in the tax
payers ability to pay taxes.

9. CANON OF ELASTICITY
•Thiscanonimplies 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 particular situation.
•The system of taxes should be governed in a
manner that they could be increased or
decreased based on the economic scenario

10. CANON OF SIMPLICITY
•Everytaxmust be simple so that people
understand the process easily
•A tax payer should be able to calculate it
without taking the help oftaxconsultants
or aid of any external source.
•A complex as well as a complicatedtaxis
bound to yield undesirable outcomes

11. CANON OF DIVERSITY
Canon of diversityrefers to diversifying the tax
sources in order to be more prudent and flexible.
Canon of diversitystates 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 specterum

12. CANON OF FISCAL ADEQUACY
Thiscanonemphasizes that a tax should bring in a
substantial amount of money to the Treasury
The policy making bodies formulate several Long
term and short term plans for the betterment of the
nation
The tax system should be able to gereate sufficient
funds in order to meet the fiscal demands of the
government

13. CANON OF FLEXIBILITY
Canon of flexibilitymeans that the entire
tax system should beflexibleenough that the
taxes can easily be increased or lowered, in
accordance with the government needs.
Moreover changes / amendments need to be
incorporated in to the act so that it suits the
needs of the economis scenario
Flexibility is the ability to make changes in
order to meet the ever changing economic
environment

14. FINANCEBILL
•A Finance Bill is a Money Bill as defined in Article 110 of the
Constitution.
•The proposals of the government for levy of new taxes,
modification of the existing tax structure or continuance of the
existing tax structure issubmitted to Parliament through this bill.
•The Finance Bill is accompanied by a Memorandum containing
explanations of the provisions included in it.

15. FINANCE BILL
•The Finance Bill can be introduced only in Lok
Sabha.
•However, the Rajya Sabha can recommend
amendments in the Bill.
•The bill has to be passed by theLok Sabha

16. FINANCE ACT VERSES FINANCE BILL
•As per Article 110 of the Constitution of India,
the Finance Bill is a Money Bill.
•The Finance Bill is a part of the Union Budget,
stipulating all the legal amendments required for
the changes in taxation proposed by the Finance
Minister.
•Post the Lok Sabha's approval, the Finance Bill
becomes Finance Act.

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