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CANON OF TAXATION
5. Canon of Productivity:
It is also called the canon of fiscal adequacy.
According to this principle, 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. The
canon is thus also called canon of adequacy.
6. Canon of Diversity:
In line with canon of productivity, canon of diversity
also gives importance to adequate collection of tax
through diversification. Thus it stresses to the fact that
it will not be a happy situation if the state depends
upon few revenue inequitable as between different
sections of the society. On the other hand, if the tax
revenue comes from diversified sources, then any
reduction in tax revenue on account of any one is
likely to be very small on total tax revenue. However,
too much multiplicity of taxes is also to be avoided.
That leads to unnecessary cost of collection and
violates the canon of economy.
7. Canon of Simplicity:
The tax system should not be too complicated.
That makes it difficult to administer and
understand and breeds problems of difference in
interpretation and legal disputes
8. Canon of Flexibility:
It should be flexible so that it becomes possible for
the authorities without undue delay, to revise the
tax structure, both with respect to its coverage and
rates, to suit the changing requirements of the
economy and of the treasury.