4.2   Tax

. Tax The origin of the word "tax" is from "taxation," which means an estimate. Taxation is a means by which governments finance their expenditure by imposing charges on citizens and corporate entities. The main purpose of taxation is to accumulate funds for the functioning of the government machinery. Tax has come into forefront on account of the new concept called “welfare state”. Taxes are compulsory payments to government without expectation of direct return (or) benefit to the tax payer. Prof. Seligman also defined a tax as “a compulsory contribution from a person to the government to defray the expenses incurred in the common interest of all, without reference to special benefits conferred”. Tax system Every type of tax has some advantages and some disadvantages. So we have a tax system, that is, a collection of variety of taxes. From Adam Smith, many economists have given lists of canons of taxation. It is important to recall those common among them for discussion here. . Canon of Equity Since tax is a compulsory payment, all economists agree that equity is the cardinal principle in designing the tax system. The rich should pay more tax revenue to government than the poor, because rich has more ability than the poor to pay the tax. . Canon of Certainty Government should announce in advance the tax system so that every tax payer will be able to calculate how much tax amount one may have to pay during a year to the government. . Canons of Economy and Convenience If the tax is simple, then the cost of collecting taxes (tax payer cost + tax collector cost) will be very low. Further, tax should be collected from a person at the time he gets enough money to pay the tax. This is called canon of convenience. A convenient tax reduces the cost of collecting tax. . Canons of Productivity and Elasticity Government should choose the taxes that can get enough tax revenue to it. It should choose a few taxes that can fetch more tax revenue, instead of lots of taxes. This is canon of