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Principles of a good tax system

A good tax system must be based on certain principles, generally called cannons of taxation.

Cannon of equality

Every individual should pay tax according to his ability to pay. Those who earn a high income should pay more taxes compared to those who earn less. It does not imply equality in the amount of tax, but in the burden of tax. This will bring about equality of income.

Cannon of certainty

The time, amount, manner and place of payment of tax should be known to the tax payer. It renders the tax system fair.

Cannon of economy

The cost of collecting taxes should be low.

Cannon of productivity

The tax should yield adequate amount of revenue to the Government so that the Government can perform its welfare and developmental activities efficiently.

Cannon of elasticity

The tax system should not be rigid. The increase or decrease in national income or output should be accompanied with an increase or decrease in the revenue collected in the form of tax.

Cannon of simplicity

The tax system should be simple, so that taxpayers can understand its implications, method, basis of calculation etc.

Cannon of diversity

There should be a variety of taxes.

Cannon of flexibility

In order to deal with economic fluctuations, the tax system should be flexible enough.

Cannon of convenience

The mode and time of payment should be convenient to the tax payer.

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