Question

Which famous economist propounded the following 4 canons of taxation.

a) Canon of equity

b) Canon of certainty

c) Canon of convenience

d) Canon of economy

1. Hugh Dalton
2. John Maynard Keynes
3. Adam Smith
4. Findlay Shirras

Answer 1

Correct Answer - Option 3 : Adam Smith

The correct answer is Adam Smith.

• Adam Smith laid down four principles to guide the taxing authority.
• Canon of Equality:
  • “The subjects of every State,” Smith asserted, “ought to contribute towards the support of the Government as nearly as possible in proportion to their respective abilities, that is, in proportion to the revenue which they respectively enjoy under the protection of the State. In the observance or neglect of this maxim consists of what is called the equality or inequality of taxation.”
  • Equality here does not mean that all tax-payers should pay an equal amount. Equality here means equality or justice. It means that the broadest shoulders must bear the heaviest burden.
• Canon of Certainty:
  • Adam Smith further said, “The tax which each individual has to pay ought to be certain and not arbitrary. The time of payment, the amount to be paid ought all to be clear and plain to the contributor and to every other person.”
  • The individual should know exactly what, when and how he is to pay a tax otherwise it will cause unnecessary suffering. Similarly, the State should also know how much it will receive from a tax.
• Canon of Convenience:
  • He wrote, “Every tax ought to be levied at the time or in the manner which it is most likely to be convenient to pay it.”
  • Obviously, there is no sense in fixing a time and method of payment which are not suitable.
  • Land revenue in India is realised after the harvest has been collected. This is the time when cultivators can conveniently pay.
• Canon of Economy:
  • Adam Smith held that “every tax ought to be so contrived as both to take out and keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the State.”
  • This means that the cost of collection should be as small as possible.

  • If the bulk of the tax is spent on its collection, it will take much out of the people’s pockets but bring very little into the State’s pocket. It is not a wise tax.