The economist, Adam Smith put forward four principles of taxation which are widely accepted today in his book The Wealth of Nations, published in 1776. These are:

1. Equity: Each taxpayer should pay tax in proportion to     
    his/her ability to pay.

2. Certainty: The taxpayer should know how much tax he/she        
    has to pay.

3. Convenience: Tax should be collected from taxpayers at a
    convenient time e.g. the PAYE (Pay As You Earn) system.

4. Economy: The cost of assessing and collecting a tax  
    should be reasonably small compared with the amount of
    revenue the tax brings in.

In addition, there are two modern principles which are widely accepted. These are:

5. Work: Taxation should not discourage the creation of
    wealth or taxpayer's work efforts.

6. Investment: Taxation should not act as a disincentive to saving or investment.


Functions of Taxation

Originally taxation arose out of the need to finance government spending. Nowadays taxation has many functions which have important effects on business and the economy. The present functions of taxation are:

1. To finance the activities of the governemnt e.g. maintenance of the civil service.
2. To redistribute wealth e.g. providing social benefits.
3. To achieve desirable social objectives e.g. discouraging smoking.
4. To achieve certain economic objectives e.g.increased tax which reduces consumer spending can help to reduce inflation.


Tax*a"tion (?), n. [F. taxation, L. taxatio a valuing, estimation, from L. taxare. See Tax.]


The act of laying a tax, or of imposing taxes, as on the subjects of a state, by government, or on the members of a corporation or company, by the proper authority; the raising of revenue; also, a system of raising revenue.

2. Law

The act of taxing, or assessing a bill of cost.


Tax; sum imposed.




Charge; accusation.




© Webster 1913.

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