Question

Please list and explain the criteria for evaluating proposed taxes. Use the principles of taxation to explain your answer.

Answer 1

Ans.  criteria for evaluating proposed taxes:

1.  SIMPLICITY:  The tax law should be simple so that taxpayers understand the rules and can comply with them correctly and in a cost-efficient manner, or else it will create confusion in the mind of tax payer.

2.  FAIRNESS:  Similarly situated taxpayers must be taxed similarly. so people living in same place should give the same tax as other people.

3. ECONOMIC GROWTH AND EFFICIENCY:  The tax system should not impede or reduce the productive capacity of the economy, hence tax system should not slow down the economy's productions capacity.

4. NEUTRALITY:  The effect of the tax law on a taxpayer’s decisions as to how to carry out a particular transaction or whether to engage in a transaction should be kept to a minimum.

5.  TRANSPARENCY:  Taxpayers should know that a tax exists and how and when it is imposed on them and others. so tax must be crystal clear for tax payers in terms of existence and implementation.

6. MINIMIZING NONCOMPLIANCE:  A tax should be structured to minimize noncompliance.

7. COST-EFFECTIVE COLLECTION:  The costs to collecting  tax should be kept to a minimum for both the government and taxpayers.

8. IMPACT ON GOVERNMENT REVENUES:  The tax system should enable the government to determine how much tax revenue will likely be collected and when.

9. CERTAINTY:  Tax rules should clearly specify when the tax is to be paid, how it is to be paid, and how the amount to be paid is to be determined.

10. PAYMENT CONVENIENCE:  A tax should be due at a time or in a manner that is most likely to be convenient for the taxpayer. Process of paying of tax should be easy for taxpayer .