BASIC CONCEPTS AND PURPOSE OF TAXATION Definition of

BASIC CONCEPTS AND PURPOSE OF TAXATION

Definition of Taxation is the part of Public Finance is that department of economic theory which we deal with the public expenditure and revenue.

The Main Functions of Government v. Protective Functions v. Administrative Functions v. Social Factions v. Development Functions

The main source of public revenue The Main source of Public Revenue are the following: I. Tax II. Fees III. Prices IV. Social Assessment V. Fines VI. State Property

Taxes may be of different kinds OF TAX I. Income Tax II. Corporation Tax III. Sales Tax IV. Excise Tax V. Custom Duty

Purposes of Taxes Ø Rising Revenue Ø Economic Stability Ø Fair distribution of Income Ø Optimum Allocation of resources Ø Protection Policy Ø Social Welfare Ø Higher Employee Level

Principle/ Canon of Taxation Adam smith, the father of modem political economy, has laid down four principles or cannons of taxation in his famous book "Wealth of Nations". These principles are still considered to be the starting point of sound public finance. Adam Smith's celebrated cannons of taxation are: (1) Cannon of equality or ability, (2) Cannon of certainty, (3) Cannon of convenience, and (4) Cannon of economy.

Classification or Types of Taxation Tax is compulsory contribution which is levied on the person to meet the expenses which are incurred for common cause. Taxes may be of different types. Taxes may be classified on the basis of: a) Impact of Tax b) Base of Tax c) Rates of Tax

a) Impact of Tax It means on whom tax is imposed and whom has to bear the burden of the tax. In this case the tax may be: - I. Direct Taxes II. Indirect taxes

b) Base of Tax The Tax base is the object Upon which the tax is levied and to which tax rate is applied. In this case, the tax may be: I. Income Tax: The tax base in income. II. Property Tax: The Tax Base in Property. III. Sales Tax: The Tax base is the property. IV. Export Tax: Tax Base is the value of goods exported. V. Import Tax: The Tax base is the Value of Goods Imported.

C) Rates of Tax The rate of tax is the percentage of the tax base to be taken in the case of a tax. In this case, the tax may be: I. Progressive Tax II. Proportional Tax III. Regressive Tax IV. Degressive Tax