Characteristics of a Good Tax system
To judge the merits of a tax system, it must be looked at as a whole. For a tax system to be a good one just cannot have all good taxes but none bad at all. The state cannot raise sufficient revenue and, at the same time, please the tax payers.
A good tax system should possess the following characteristics:
1. It should ensure maximum social advantage. Taxation should be used to finance public services.
2. It should cause minimum aggregate sacrifice. In a good tax system, the allocation of taxes among tax payers is made according to the ability to pay. It falls more heavily on the rich and less on the poor. It should be reasonably progressive so as to minimise the gap of inequality of income and wealth in the community, thereby ensuring their better distribution.
3. In a good tax system, taxes are universally applicable in the sense that persons with same ability to pay are treated in the same way without any discrimination whatsoever. In the Indian tax system, however, this attribute is lacking to some extent. For instance, income tax is not universal in India, as no income tax is levied on agricultural incomes.
4. It should contain a predominance of good taxes satisfying most of the canons of taxation. That is to say, the taxes imposed should be more or less equitable, convenient to pay, economical, certain, productive, flexible and simple as far as possible.
5. The entire structure of the tax system should have built-in flexibility, so that changes are possible according to the changing conditions of a dynamic economy. It should be possible to add or withdraw a tax without destroying the entire system and its balancing effect. A rigid tax structure is very unsatisfactory. Taxation must cope with the changing needs of the modern government. The capacity to adjust itself to the dynamic conditions of an economy is a virtue of a good tax system.
6. A good tax system should be a balanced one.It means there must exist not one kind of taxes but all types in the right proportion. In other words, it should not contain just progressive, regressive or proportional taxes only, but a healthy combination of all such taxes. Similarly, it should have a balance of direct and indirect taxes.
7. The tax system should be multiple, but then took a great multiplicity is not desirable. Dalton, however, suggests that a good tax system has to be also a reasonably efficient administrative system.
8. Further, in a good tax system there is simplicity, implying the absence of any unnecessary and avoidable complexities.
9. A good tax system should not hamper the development of trade and industry, but instead help the rapid economic development of the country. Taxation is designed to mobilise the surplus resources in the economy and not deprive the private sector of its resources.
A good tax system should possess the following characteristics:
1. It should ensure maximum social advantage. Taxation should be used to finance public services.
2. It should cause minimum aggregate sacrifice. In a good tax system, the allocation of taxes among tax payers is made according to the ability to pay. It falls more heavily on the rich and less on the poor. It should be reasonably progressive so as to minimise the gap of inequality of income and wealth in the community, thereby ensuring their better distribution.
3. In a good tax system, taxes are universally applicable in the sense that persons with same ability to pay are treated in the same way without any discrimination whatsoever. In the Indian tax system, however, this attribute is lacking to some extent. For instance, income tax is not universal in India, as no income tax is levied on agricultural incomes.
4. It should contain a predominance of good taxes satisfying most of the canons of taxation. That is to say, the taxes imposed should be more or less equitable, convenient to pay, economical, certain, productive, flexible and simple as far as possible.
5. The entire structure of the tax system should have built-in flexibility, so that changes are possible according to the changing conditions of a dynamic economy. It should be possible to add or withdraw a tax without destroying the entire system and its balancing effect. A rigid tax structure is very unsatisfactory. Taxation must cope with the changing needs of the modern government. The capacity to adjust itself to the dynamic conditions of an economy is a virtue of a good tax system.
6. A good tax system should be a balanced one.It means there must exist not one kind of taxes but all types in the right proportion. In other words, it should not contain just progressive, regressive or proportional taxes only, but a healthy combination of all such taxes. Similarly, it should have a balance of direct and indirect taxes.
7. The tax system should be multiple, but then took a great multiplicity is not desirable. Dalton, however, suggests that a good tax system has to be also a reasonably efficient administrative system.
8. Further, in a good tax system there is simplicity, implying the absence of any unnecessary and avoidable complexities.
9. A good tax system should not hamper the development of trade and industry, but instead help the rapid economic development of the country. Taxation is designed to mobilise the surplus resources in the economy and not deprive the private sector of its resources.
Above all, the most fundamental characteristic of a good tax system is the appreciation of the rights and problems of the tax payer. A good tax system must contain the majority of such taxes which produce good effects on production and equitable distribution of national income and wealth. To achieve the socialistic goals of public policy a good tax system plays a very important role.It should effectively balance the weight and burden of taxation. The weight refers to absolute sacrifice, in terms of purchasing power of real income surrendered by the tax-payer. The burden implies the relative capacity of the tax-payer to bear the tax.
Thus, the tax system should contain taxes which are strictly in relation to the tax payer’s ability to pay. In Dalton’s opinion, in a good tax system, there should be a double illusion that rich should pay more than what they think they should, so that the rich will be contented and the poor become virtuous; in this way, the incentive to work and save will be sustained.
Various factors have to be considered in determining the tax system of a country. The tax system of a country develops according to the tax ideals of the government and the goals of public policy, which the system has to incorporate in its structure. The practical shape of the tax system of a country depends on its historical background.
As such, the tax system of one country differs from that of another, depending on the institutional and historical differences. Nevertheless, as a guiding policy, a good tax system in any country with any background must seek the maxim of least aggregate sacrifice in its taxation policy.
In a less developed country, the tax system should be designed for the mobilisation of economic surpluses for economic development. Taxes should be such that they help in raising the incremental savings ratio. Taxes should work as a measure to prevent the flow of funds into undesired channels of production.
Thus, the tax system should contain taxes which are strictly in relation to the tax payer’s ability to pay. In Dalton’s opinion, in a good tax system, there should be a double illusion that rich should pay more than what they think they should, so that the rich will be contented and the poor become virtuous; in this way, the incentive to work and save will be sustained.
Various factors have to be considered in determining the tax system of a country. The tax system of a country develops according to the tax ideals of the government and the goals of public policy, which the system has to incorporate in its structure. The practical shape of the tax system of a country depends on its historical background.
As such, the tax system of one country differs from that of another, depending on the institutional and historical differences. Nevertheless, as a guiding policy, a good tax system in any country with any background must seek the maxim of least aggregate sacrifice in its taxation policy.
In a less developed country, the tax system should be designed for the mobilisation of economic surpluses for economic development. Taxes should be such that they help in raising the incremental savings ratio. Taxes should work as a measure to prevent the flow of funds into undesired channels of production.
Thus, the tax system should contain taxes which are strictly in relation to the tax payer’s ability to pay. In Dalton’s opinion, in a good tax system, there should be a double illusion that rich should pay more than what they think they should, so that the rich will be contented and the poor become virtuous; in this way, the incentive to work and save will be sustained.
Various factors have to be considered in determining the tax system of a country. The tax system of a country develops according to the tax ideals of the government and the goals of public policy, which the system has to incorporate in its structure. The practical shape of the tax system of a country depends on its historical background.
As such, the tax system of one country differs from that of another, depending on the institutional and historical differences. Nevertheless, as a guiding policy, a good tax system in any country with any background must seek the maxim of least aggregate sacrifice in its taxation policy.
In a less developed country, the tax system should be designed for the mobilisation of economic surpluses for economic development. Taxes should be such that they help in raising the incremental savings ratio. Taxes should work as a measure to prevent the flow of funds into undesired channels of production.
Thus, the tax system should contain taxes which are strictly in relation to the tax payer’s ability to pay. In Dalton’s opinion, in a good tax system, there should be a double illusion that rich should pay more than what they think they should, so that the rich will be contented and the poor become virtuous; in this way, the incentive to work and save will be sustained.
Various factors have to be considered in determining the tax system of a country. The tax system of a country develops according to the tax ideals of the government and the goals of public policy, which the system has to incorporate in its structure. The practical shape of the tax system of a country depends on its historical background.
As such, the tax system of one country differs from that of another, depending on the institutional and historical differences. Nevertheless, as a guiding policy, a good tax system in any country with any background must seek the maxim of least aggregate sacrifice in its taxation policy.
In a less developed country, the tax system should be designed for the mobilisation of economic surpluses for economic development. Taxes should be such that they help in raising the incremental savings ratio. Taxes should work as a measure to prevent the flow of funds into undesired channels of production.
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