Adam Smith gave four principles of taxation which he called the canons of taxation. Canons of taxation refer to the administrative aspects of a tax. They relate to the rate, amount, and method of levy and collection of a tax. Some other writers have also prescribed some other principles. A brief description of them is as follows –
Canon of Equality: This canon tries to observe the object of economic justice.
Canon of Certainty: The tax which each individual is bound to pay ought to be certain and not arbitrary. The time of payment, the quantity to be paid all ought to be clear and plain to the contributor and to every other person.
Canons of Convenience: This canon takes into consideration the interest of the taxpayer from the viewpoint of tax. It emphasizes that the mode and timings of tax payment should be so far as possible, convenient to the taxpayer.
Canon of Economy: Every tax has a cost of collection. It is important that the cost of collection should be as minimum as possible.
Canon of Productivity: The tax system should be able to yield enough revenue for the treasury and the government should not be forced to resort to deficit financing.
Canon of Diversity: The tax system should be diversified.
Canon of Simplicity: The tax system should not be complicated. It should enough simple to understand the canon people.
Canon of Flexibility: The tax system should be flexible.
Canon of Social Objectives: Charging and collecting taxes always need to be in line with the social and economic policy of the government.
Canon of Functional Efficiency: Tax policy needs to be efficient, operate and objective.
Adam Smith first devised the principles or canons of taxation in 1776. Although these canons of taxation were presented a very long time ago, they are still used as the foundation of discussion on the principles of taxation.