Adam Smith's Canons of Taxation

Canons of taxation refers to a set of criteria used to a judge whether or not a tax is a "good" tax. The Canons of Taxation were first developed by Prof. Adam Smith. Adam Smith, in his book entitled "The Wealth of Nation" laid down the canons of taxation which are still viewed as the foundation of the principles of taxation. He perceived that the duty of tax collection ought to conform to certain essential criteria and propounded taking after four canons of taxation.

1. Canon of Equality : This Canon state that a good tax is that which is based on the principle of equality. In this principle, it is maintained that the tax must be levied according to tax paying capacity of individuals. This principle state that the burden of taxation should be fair and just. In the words of Adam Smith, "The subject of every state should contribute towards the backing of the government, as nearly as possible, in proportion to their respective capacities, that is, in proportion to the income which they respectively enjoy under the protection of state."
2. Canon of Certainty : This canon state that the taxpayers should feel certainty regarding the time of payment, amount to be paid, method of payment, the place of payment and the authority to whom the tax is to be paid. Thus certainty creates confidence in the contributor of the tax. In the words of Adam Smith, "the tax which is individual bound to pay should be sure and not discretionary. The season of payment, the quantity to be paid, all ought to be clear besides, to the contributor and to each other person."
3. Canon of Convenience : This canon state that the tax should be exacted and gathered in such a way, to the point that it gives maximum convenience to the taxpayers. The public authorities should always keep this point in the view that the taxpayers suffer the least inconvenience in payment of tax. In the articulations of Adam Smith, "Each tax should be exacted at the time or in the manner which is most likely to be convenient for the supporter to pay it."
4. Canon of Economy : This canon state that the collection expenses of tax should be less than the amount of tax collected so that a surplus to public revenue is generated and the country will be benefited. This canon also implies that a tax should interfere as little as possible with the productive activity and general efficiency of the community so that it may not create adverse effect on production and employment. In the words of Adam Smith, Each tax should be so invented as both to take out and to keep out of the pockets of the people as little as possible, far beyond what it brings into people in general treasury of the state. (Source Tax laws & Tax planning in Nepal , Corporate taxation with tax planning)