27/01/2015
What is Taxation ???
Definition :
A means by which governments finance their expenditure by imposing charges on citizens and corporate entities.
Governments use taxation to encourage or discourage certain economic decisions. For example, reduction in taxable personal (or household) income by the amount paid as interest on home mortgage loans results in greater construction activity, and generates more jobs.
Taxation Principles :
Basic concepts by which a government is meant to be guided in designing and implementing an equitable taxation regime. These include:
(1) Adequacy: taxes should be just-enough to generate revenue required for provision of essential public services.
(2) Broad Basing: taxes should be spread over as wide as possible section of the population, or sectors of economy, to minimize the individual tax burden.
(3) Compatibility: taxes should be coordinated to ensure tax neutrality and overall objectives of good governance.
(4) Convenience: taxes should be enforced in a manner that facilitates voluntary compliance to the maximum extent possible.
(5) Earmarking: tax revenue from a specific source should be dedicated to a specific purpose only when there is a direct cost-and-benefit link between the tax source and the expenditure, such as use of motor fuel tax for road maintenance.
(6) Efficiency: tax collection efforts should not cost an inordinately high percentage of tax revenues.
(7) Equity: taxes should equally burden all individuals or entities in similar economic circumstances.
(8) Neutrality: taxes should not favor any one group or sector over another, and should not be designed to interfere-with or influence individual decisions-making.
(9) Predictability: collection of taxes should reinforce their inevitability and regularity.
(10) Restricted exemptions: tax exemptions must only be for specific purposes (such as to encourage investment) and for a limited period.
(11) Simplicity: tax assessment and determination should be easy to understand by an average taxpayer.
