Theory question 112
Public Finance(a) What is incidence of taxes?
(b) Explain any four principles of taxation.
Show the model answer
Model answer
(a) Incidence of tax is where the burden of a tax finally rests, i.e. the person who actually bears it.
(b) Any four (canons of taxation): equity – tax according to ability to pay; certainty – amount, time and method of payment known; convenience – collected at a time and in a manner convenient to taxpayers; economy – cost of collection low compared with yield; flexibility/elasticity – yield can be adjusted to needs; simplicity – easy to understand; productivity – yields enough revenue; neutrality.
Explanation
Adam Smith's four canons are equity, certainty, convenience and economy.