11 Important Requirements of a Good Tax Structure

1. Equity:

The distribution of the tax burden should be equitable. Everyone should be made to pay his or her ‘fair share’.

2. Neutrality:

Taxes should be chosen so as to minimise interference with economic decisions in otherwise efficient markets. Such interferences impose ‘excess burden’ which should be minimised.

Tax structure

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3. Efficiency:

Where tax policy is used to achieve other objectives such as to grant investment incentives, this should be done so as to minimise interference with the equity of the system.

4. Certainty:

The tax which each individual is bound to pay ought to be certain and not arbitrary. The time of the payment, the manner of payment, and the quantity to be paid, all ought to be clear and plain to the contributor, and to every other person.

5. Economy:

Every tax ought to be so contrived as to both take out and keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the state. Administration and compliance costs should be as low as is compatible with the other objectives.

6. Simplicity:

The tax system should permit fair and non-arbitrary administration and it should be understandable to the tax-payer. It means that the tax-system should be easily comprehensible to the tax-payer, i.e., its nature, method and basis of estimation should all be easily followed by each tax-payer.

7. Convenience:

Every tax ought to be levied at the time, or in a manner in which it is most likely to be convenient for the contributor to pay it.

8. Productivity:

A tax system to be thoroughly sound and enduring must be able to generate enough revenue to meet the requirements of the government.

9. Elasticity:

In the system, there should be a capacity to respond quickly to the changes in the demand for revenue.

10. Diversity:

The tax system should be such that it depends on a number of taxes, so that every class of citizen may be called upon to contribute something towards the state revenue.

11. Fiscal Objectives:

The tax structure should facilitate the use of fiscal policy for stabilisation and growth of objectives.

Submitted by : Professor Victoria, Category : Economics