ANSWERS: 1
  • Cannons of Taxation Four criteria for a "good tax" (Adam Smith, 1904): 1. Equitable – equal treatment of similarly situated taxpayers. horizontal equity: all purchasers of the same equity pay the same tax vertical equity: unequally situated taxpayers being taxed on their ability to pay as per progressive taxation philosophies. For mining industry – natural conflicts. Mining goal ==> the maximization of resource utilization; Taxing authority goal ==> the maximization of social economic benefits to the individual state of taxing power. 2. Convenient – a tax that can be readily and easily assessed, collected, and administered. 3) Certain – the consistency & stability in the prediction of taxpayers' bills and the amount of revenue collected over time. 4) Economical – compliance and administration of a tax should be minimal in terms of cost. Three additional criteria: 5. Adequacy - a tax should have the ability to produce a aufficient and desired amount of revenue to the taxing authority. 6. Achievement of social and economic effects - the use of taxes to reallocate resources to achieve various specific social and economic objectives. 7. Neutrality - a tax should not encourage inefficient allocation of resources by being so extreme that taxpayers make counterproductive economic decisions. Basically, The noted 18th century English economist, Adam Smith, had enunciated the cannons of taxation in his celebrated work, An Inquiry into the Nature and Causes of the Wealth of Nations, which was popularly abbreviated to Wealth of Nations. According to Smith there are four basic cannons of taxation, which are based on the concepts of equality, certainty, convenience and economy. The cannon of equality arises from the following idea: '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 embodies the principle of equity or justice and lays down the moral foundation of the tax system. 'It is not unreasonable that the rich should contribute to the public expense not only in proportion to their revenue but something more than that proportion,' Smith had written in his Wealth of Nations. Thus, tax should in proportion to the ability to pay. The canon of certainty is highlighted in the following statement by Smith: "The tax which each 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. Where it is otherwise, every person subject to tax is put, more or less, in the power of tax-gatherer, who can either aggravate the tax upon any obnoxious contributor, or extort, by the terror of each aggravation, some present or perquisite to himself." Certainty is needed not only from the point of view of the tax payer but also from that of state. The cannon of convenience states that 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. Finally the cannon of economy dictates that every tax ought to be so contrived as both to take out and to keep out of the pocket of the people as little as possible, over and above what it brings into the public treasury of the state. Some later economists subsequently added a few more canons to Smith's four described above. Among these are: elasticity, flexibility, simplicity and diversity. http://www.blurtit.com/q491531.html http://72.14.209.104/search?q=cache%3AzFUpCsDa4JUJ%3Ahttp%3A%2F%2Fmason.gmu.edu%2F~rwagner%2FSPP%2520text%2520Wagner.pdf%20cannons%20of%20taxation http://www.ucd.ie/news/dec05/121605_fantasy_budget_winners.htm

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