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Chapter 2 Tax
Chapter 2 Tax
UNIVERSITY
MEANING AND
CHARACTERISTICS
OF TAXATION
Miss. Kiya B.
December 2023
Haramaya, Ethiopia
CONTENTS
• Meaning and Nature of Tax
• Characteristics of Tax System
• Objectives of Taxation
• Principles of Taxation
• Tax Classifications
• Tax Rate Structures
• Shifting and Incidence of Taxation
• Tax Evasion, Avoidance and Delinquency
Chapter Objectives
On successful completion of this Chapter, students should;
Familiar with the meanings and objectives of taxation
Understand the principles of taxation
Discuss the tax structures
Explain the different types of taxes
Know shifting and incidence of taxation
Differentiate tax evasion, avoidance and delinquency
2.1. Meaning of tax
“A tax is a contribution from citizens for the support of the government".
Adam Smith
In the earlier days, payment of taxes was optional. A choice was given to
the people to pay the tax and to gain the benefit of social services in the
form of education, health and sanitation, utilities and recreation facilities.
Taxes have been a major subject of political controversy throughout
history, even before they constituted a sizable share of the national
income.
In Greece free citizens had different tax obligations from slaves, and the
tax laws of the Roman Empire distinguished between nationals and
residents of conquered territories.
For a long time tax collection was left to middlemen, or “tax farmers,”
who contracted to collect the taxes for a share of the proceeds; under
Caesar collection was delegated to civil servants.
5. Canon of Productivity
6. Canon of Elasticity
7. Canon of Diversity
8. Canon of Simplicity
9. Canon of Buoyancy
10. Canon of Flexibility
11. Canon of Expediency
12. Canon of Co-ordination Etc.
TAXES ARE KEY TO SUSTAINABLE DEVELOPMENT!
Cont.…
CANONS ADVOCATED BY ADAM SMITH
1. Canon of Equity
One important principle of a good tax system is fairness (equity).
Everyone agrees that the tax system should be equitable, i.e., that each
taxpayer should contribute his/her “fair share” to the cost of government.
There is no agreement on how the term “fair share” should be defined.
What a “fair share” means in practice the subject of endless contention and
debate.
There are two schools of thought:
1. The benefit principle
2. The ability to pay principle
Tax compliance costs – costs incurred by taxpayers and third parts in the
process of complying with the requirements of a tax legislation and
administration procedures;
Tax administrative costs can be broadly viewed as resources sacrificed by
the public sector in connection with a tax system.
Public sector costs of taxation conceptually constitute those costs which
would not have been incurred if the tax had never been introduced
(Sandford et al. (1989)).
There are different types of tax structures (system) which are applied by the
governments on different taxes. These are:
TAXES ARE KEY TO SUSTAINABLE DEVELOPMENT!
A. Progressive Tax Structure
Is also called graduated tax.
It is usually applied in reference to income taxes, where people with more
income pay a higher percentage of it in taxes.
The tax rate increases as the tax base income increase.
Merits of Progressive Tax System
Equality in Sacrifice
Reducing the inequalities of income
and wealth
Economy
Elastic
Stabilizing the economy