Finance

What Are The Characteristics Of a Good Tax System?

A Good Tax System can contribute a lot to the economic development of a country and its national exchequer. Equitable Tax System bears a significant role in bringing the harmony in the life style of the population of the country. The Qualities of a Good Tax System may be discussed as follows-

(1) Equity. The burden of tax in a good tax system should be the minimum and just. The concept of equity in taxation has two aspects-

(i) The rich should bear more burden and the poor less burden or no burden. In other words, it means those who have must pay and those who do not have need not pay, and

(ii) “Equal treatment for equals”: Those who are similarly situated i.e., have equal incomes or wealth should pay the same amount of tax. For this purpose, a proper blending of direct and indirect taxes in the taxation system, is necessary. From equity point of view, the Indian tax system has predominance of indirect taxes that reflects the inequitable nature of this system.

(2) Productivity. Productivity of a good tax system may be interpreted in two ways-

(i) the tax system should yield a satisfactory return to the government to meet the public expenditure, and

(ii) the taxation system should be such as not to produce any adverse effect on the productive capacity of the country.It should rather encourage production. From this point of view, much is desired in the Indian tax system. A number of taxes in India do not produce much to the government or the society.

(3) Elasticity.  A Good Tax System of a country should be such as to provide adequate elasticity in the tax system. In other words, it means that the tax revenue should increase with the increase in the national income of the country without any fresh imposition of tax-dose. The tax system should be so as to yield more income when the government expenditure goes up at a time of emergency or crisis. Two things are essential for this purpose- (a) there should a proper balance between direct and indirect taxes, and

(b) Certain sources of income, should be exclusively reserved for emergencies like war etc. The Indian tax system satisfies the test of elasticity in a sufficient measure in so far the income of the government keeps on increasing in accordance with its requirements.

(4) Convenience. A good tax system is that which cares for the convenience of the tax payer. The Government while devising the tax system of the country, should take into consideration the convenience of the sacrifice. The Government should see that the tax payer is not put to any avoidable hardship in making the payment of tax. He must be given sufficient time to pay the tax at his convenience. Besides, the tax laws must be simple and quite understandable by a layman. The tax system, no doubt, satisfies the cannon of convenience but the cannon of simplicity, Indian tax system is highly complex and is much beyond the understanding of an average tax payer.

(5) No Tax Evasion. Good tax system of a country must be so devised as to leave no scope for. the evasion of tax by the tax payer. For this purpose, there should be proper blending of all sorts of commodity and personal taxes. This will reduce the scope for tax evasion to the minimum. From this point of view, there is much scope for tax-evasion in Indian tax system. The result of tax-evasion is the black money in the country.

(6) Maximum Social Advantage. According to Dalton, that system of taxation is the best which is based on the principle of maximum social advantage i.e. greatest good of the greatest number. The main objective of a good taxation system should be to attain certain social objectives such as redistribution of wealth and income, to reduce inequalities, etc. Indian tax system hardly satisfies the cannon of maximum social advantage. Moreover, the tax system would be so devised as to have the least bad effects on the economy and the productive capacity of the country.

(7) Tax System should be balanced. A good tax System should be composed of all kinds of taxes, direct and indirect. It will produce more revenue to the Government and the maximum benefit to the society. It should be so balanced that every citizen should contribute to the exchequer. From this point of view, Indian tax System is good because it has large number of Taxes with different names.

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