Tax
A Tax is a compulsory exaction of money by public authority for public purpose enforceable by law and is not payment for services rendered.
Objective of Taxation :
The following are the objectives of Taxation.
They are :-
1. Prevention of concentration of wealth.
2. Redistribution of wealth for common perposes.
3. Maintenance of welfare state.
4. Equality between persons subject to reasonable classification.
Ingredients :
The following are the ingredients of tax.
They are :-
1. Tax is a compulsory exaction of money by public authority
2. Tax is used foe public purpose
3. Tax is enforceable by law
4. Tax is not a payment, for services rendered.
Taxes may classified into two kinds namely ;-
1. Direct Taxes and
2. Indirect Taxes.
1. Direct Taxes :
If the tax burden is directly felt and paid by one and the same person then it is called "Direct Taxes". It is demanded from the person who is to mpay. It is taxed on income received or on property. The rates of direct taxes are progressive.
Eg:-
Income Tax, Wealth Tax, corporation Tax, Profession Tax, Urban Tax etc.,
2. Indirect Taxes :
If the tax burden is shifted fron one person to another it is called "Indirect Tax". It is imposed on expenditure or sales or manufacture. The rates of indirect taxes are propotional. Tax evasion is not possible in case of indiretc taxes.
Eg;-
Custom Duty, Excise Duty, Central Sales Tax, General Sales Tax, Motor Vehicles Tax etc.,
Characteristic of Good Tax system :
Adam Smith in his book "Wealth of Nations" in 1776, has laid down four Canons of Sound taxation.
They are :-
1. Canons of Equality or Equity
2. Canons of Certanity
3. Canons of Convenience and
4. Canons of Economy.
1. Canons of Equality or Equity :
Each citizen ought to contribute towards the support of the government in proportion to their respective abilities. So, agood tax system should be devised in accordance with the principle of equality. Here, tax burden should be made heavier to the richer community.
2. Canons of Certanity :
The tax which each individual is bound to pay ought to be certain, and it should not be arbitrary.
3. Canons of Convenience :
Every tax ought to be levied, should be conveninent for the tax payer. The time of payment, the manner of payment, the quanonty to be paid should be suited to the conveninence of the tax payer.
4. Canons of Economy :
Taxes should be devised in such a manner that the difference between tax payer's loss and revenue's gain be minimized. Taxes involoving heavy collections should be avoided for the reason that it may destroy funds which may be utilised in carrying on certain industry or trade. If the taxes are economical, then it may cause least disturbance to the industry or trade.
The following are regarded as the main characteristics of Good tax system.
1. It must prevent concentration of wealth by a few individuals.
2. There must be redistributions of wealth for the common good of all section of people.
3. A good tax system would imply the maintenance of a welfare state and
4. There must be equality between persons subject to reasonable classification.
Like it on Facebook, Tweet it or share this article on other bookmarking websites.