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State and explain Adam Smith's four Canons of Taxation - Leaving Cert Economics - Question 6 - 2018
Question 6
State and explain Adam Smith's four Canons of Taxation. (i) (ii) (iii) (iv)
Worked Solution & Example Answer:State and explain Adam Smith's four Canons of Taxation - Leaving Cert Economics - Question 6 - 2018
Step 1
(i) Equity
Answer
Equity in taxation refers to the idea that taxpayers should contribute to the government based on their ability to pay. This principle emphasizes that as one earns more income, they should pay a larger proportion of it in taxes. Thus, the tax system should be progressive, ensuring that those with higher incomes contribute more relative to their financial capability.
Step 2
(ii) Economy
Answer
Economy emphasizes that the cost of collecting taxes should not exceed the revenue generated. This means that the processes involved in taxation should be efficient. The primary goal is to raise revenue for public needs while keeping the costs of collection minimal and ensuring the effectiveness of the tax system.
Step 3
(iii) Certainty
Answer
Certainty in taxation denotes that both the taxpayer and the government should have clarity about the amounts due, payment methods, and timelines. Taxpayers should know how much they owe and when payments are required, while authorities must be informed about expected revenues. This clarity supports better financial planning for both parties.
Step 4
(iv) Convenience
Answer
Convenience refers to the timing and method of tax payment. It suggests that tax payments should be made in ways that suit the taxpayer, making it more manageable. For instance, deducting taxes at source, like PAYE (Pay As You Earn) and VAT (Value Added Tax), increases compliance and minimizes administrative burden.