A Quick Look At The 4 Principles Of Taxation

Whenever government are setting up taxation systems, it is important that they put certain principles into consideration so that they can be in a position to serve their people well. There are many principles of taxation that have been developed for many years after Adam Smith, but there are four principles that are known to many economists all over the world. In this article, we are going to look at these four principles in details.

Principle of Efficiency

This principle of taxation is one which state that the totals cost of collecting taxes should not be too much to the extent of making the taxation system. The costs that are discussed here can be divided into the administrative costs and the compliance costs. The Administrative costs are those that are aimed at ensuring that the government plays its role, such as employing of the tax officials, the cost of printing forms, and so on. On the other hand, the compliance costs are those that will be incurred by the taxpayer in a bid to make sure that the taxes are paid.

The principle of equity

The second most important principle of taxation is that of equity. This principle stipulates that the taxation system should be such that the wealth is redistributed to the poor from the rich, so that people pay according to their abilities. This principle is what has brought about the progressive type of taxation system in many countries.


The third principle of taxation is that of flexibility. A tax system should not be rigid, but it should be very flexible so that if there are any changes in the economy that might necessitate changes in the tax laws, it should be moderately easy to make these changes. A tax system where it is very difficult to make changes to legislation on taxes can be extremely difficult to run.


The last principle of taxation that we shall be looking at is that of certainty. Despite the fact that a taxation system should be flexible to allow changes, it should not be fluid. A good taxation system should be firm so that one can easily predict how the situation will be in a few years. This is important as it creates a sense of stability especially to the investors.

These four taxation principles are extremely necessary for any country to consider if at all that country is looking forward to growing in the future.

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