Canons of taxation: Adam Smith
- Equity: taxes should be equitable or fair. In Ireland, PAYE is considered a progressive tax as those who earn more pay more.
- Certainty: The amount of tax which a person must pay (the state collects) should be certain and clear. Changes to tax made in the budget in October each year.
- Convenience: tax should be collected in a manner that is easy for the taxpayer to pay. eg. online, by phone, deducted directly from wages.
- Economy: tax should be cheap to collect. It shouldn’t cost the taxpayer more to collect the tax than the amount being collected.
Other characteristics to consider of a good taxation system
- Taxes should not act as a disincentive: The marginal rates of tax should not discourage workers from working overtime / tax rates on profits should not discourage investment by entrepreneurs / savings should not be discouraged.
- Taxes should aid the redistribution of income: A good tax system should help the government redistribute income from the rich to the poor /progressive taxes allow the government to do this.
- Tax rates should be consistent with national economic objectives: The taxes levied should help the government achieve other economic/social objectives. E.g. raising excise rates on cigarettes will help discourage smoking.
- Evasion should be impossible: A good tax should be impossible to evade, otherwise the tax is not fair.
Taxation revenues: Monies/incomes received by the government in the form of direct & indirect taxes, and used in the running of the country.
Broaden the tax base: Increasing the number of people / areas on which tax is levied / in the tax net.
Regressive tax: does not take into account your ability to pay the tax/ people on lower incomes would pay a greater proportion of their income in tax.
Progressive tax: is based on the taxpayer’s ability to pay. It imposes a lower tax rate on low-income earners than on those with a higher income.