Theory question 110
Public FinanceSection B (answer four questions only from this section)
(a) What is a tax?
(b) Describe any four principles of a good tax system.
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(a) A tax is a compulsory payment levied by government on persons, firms or goods, for which the payer receives no direct benefit in return, used to finance government spending.
(b) Any four (canons of taxation): Equity – tax based on ability to pay; Certainty – the amount, time and method of payment are clear; Convenience – paid at a time and in a way convenient to the taxpayer; Economy – the cost of collection is low compared with the yield; Flexibility – easy to change as conditions change; Productivity – it yields enough revenue; Simplicity – easy to understand; Neutrality – it does not discourage work or investment.
Name each principle and explain it.