Good Tax System : A Productive Source of Income for Government

Public expenditure has been continuously increasing with the expansion of the function of modern governments. Since the tax revenue is the easiest, the most suitable  and productive source of income.  Government is inclined to use more of this rather than the non- tax revenue.It is, therefore, instructive to study the characteristics of a good tax system.

Canon of Equity

The tax system should meet the canon of equity. Every person should be taxed according to his ability. That is, the rich should pay more and the poor less so that taxes should be progressive in nature.

Canon of Certainty

A good tax system should be based on the canon of certainty. The time of payment, the mode of payment, the amount to be paid, should all to be clear and plain to the supplier and to every other person. The tax which every person is mandatory to pay should be convinced and not random so that he is left to the whims of the tax officials.

Canon of Convenience

The tax system should satisfy the canon of convenience, i.e. the time and mode of payment of the tax should be so flat that it is not problematic for the tax payer. Economical

A good tax system should be economical to the government in the sense that the cost of collection of the tax should be small in percentage to the income from them.

To Bring in Sufficient Revenue

The tax system should be such as to fetch in adequate revenue in the exchequer, in other words, it should be productive.

Elastic

A good tax system should be adequately elastic so that the tax revenue may be increased or decreased according to the necessities of the state.

Simple

The tax system should be simple to understand and administer.

Multiple Taxes

A good tax system should have multiple taxes rather than a single, tax. It is best to rely on a few significant taxes for the volume of the tax revenue. In so far as it is desired to tax the rich, income and inheritance taxes are the best means; in so far as it is desired to tax the poor, taxes on few commodities of wide consumption, preferably commodities not necessary to health and efficiency. Other taxes on luxuries have their legitimate place and some taxes with special objects may be added, but it is desirable to keep their number within bounds.

Income Elastic

It should be income – Elastic. As national income increases, the share of taxation in national income should increase more than proportionately.

Reduce the Inequality of Income

According to Wagner, the German economist, a good tax system should reduce the inequality of incomes.

Balance

Last but not the least, the tax system should be a balanced one in which progressive, proportional, direct and indirect taxes should be properly distributed. The major problem is to find a sufficient number of taxes that may convince these criteria. But treasury officials can no more find one tax that pre - eminently meets all requirements that an automobile engineer can design a car that is simultaneously fastest, safest and cheapest.