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Taxation is a means by which governments finance their expenditure by imposing charges on citizens and corporate entities. It is the most important source of revenue for the government and is inturn used for public welfare. A good tax system is designed on the basis of an appropriate set of principles (rules) and will strike a balance between the interest of the taxpayer and that of the tax authorities.


Adam Smith has developed four Canons of taxation. They are

Canon of Equity: A principle that is aimed at providing economic and social justice to people. For this every person should pay tax to the government on the basis of his ability to pay. Hence taxes should be proportionate to the revenue.

Canon of Certainty: There should be certainty about the amount of tax that should be paid. The taxpayer should know the amount of tax to be paid and when.

Canon of Convenience: The mode and timing of the tax should be according to the convenience of the taxpayers. This will encourage and motivate taxpayers to pay tax.

Canon of Economy: The cost of collecting taxes should be lower than the amount of tax collected. Modern economists have come up with additional canons for taxation. They are canons of productivity, elasticity, flexibility, simplicity, and diversity.

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