Characteristics of Good Tax System/Cannons of Taxation/Principles of Good Tax System

A good tax system is that tax which can ensure distributive justice and
economic stability. Following are the characteristics of a good tax system:
1. Canon of equity: According to this principle, tax should be levied on the
basis of tax-paying ability of the people. It means that rich people should
pay more tax and poor people has to pay less tax.
2. Canon of certainty: According to this principle, the amount, time, and
process of tax payment should be clear to the taxpayers. Similarly, the
government should also be able to correctly estimate the amount of taxes
to be collected.
3. Canon of convenience: According to this principle, the time and method of
tax payment must be comfortable to the taxpayers.
4. Canon of the economy: It means that the cost of collection of taxes for the
government should be as minimum as possible.
5. Canon of Neutrality: A good tax system is neutral. It means that tax policy
should not discourage the ability and desire to work, save and invest. A tax
system should be able to minimize its bad economic effects.
6. Canon of simplicity: A good tax system is simple and easy to understand.
7. Canon of elasticity: A good tax system is flexible. It means that the
government should be able to increase or decrease the tax revenue/tax
rate as per requirement.
8. Canon of multiplicity: A good tax system is that which composes various
types and rates of tax. A good tax system includes direct and indirect taxes
and proportional and progressive taxes in a balanced way.