Taxation principles

From CEOpedia | Management online
Taxation principles
See also

Taxation principles are the main principles, rules and regulationsused in the field of taxation. For the first time, the principles of taxation were formulated by Adam Smith, which retained their relevance to the present, only in a more perfect form.

The four basic principles of taxation for A. Smith

The principle of equality and justice: all individuals and legal entities should participate in the formation of state revenues in accordance with the income and opportunities received.

The principle of certainty: taxes paid by citizens must be defined, i.e. contain exactly defined time of payment, method of payment and the amount of tax.

The principle of convenience: taxes paid by taxpayers should be collected convenient for the taxpayer in ways and at convenient times.

The principle of thrift levy: tax collection should be as efficient as possible, i.e. include low costs for tax collection and maintenance of tax authorities [1].

Formulated at the end of the eighteenth century the principles of taxation laid the foundations of modern financial and tax policy of states. At the same time, despite Adam Smith's great authority, that the principles he formulated became axioms, it took more than a hundred years before they were introduced into the financial practice of states. Only in the second half of the 19th century, when the state was strengthened, and financial science was finally formed, the principles of taxation could be implemented when creating tax systems.

Economic principles of taxation

These principles include [2].:

  • The principle of equality and justice.
  • The principle of efficiency - the tax system should be effective, contribute to increasing economic growth and activity of citizens and organizations. Tax collection should not in any way hinder the development of production in the country.
  • The principle of tax proportionality - in the taxation system and the definition of its main elements, it is necessary to take into account the consequences for the budget of a country and the development of its economy.
  • The principle of multiplicity - this principle provides the prerequisites for a flexible tax policy in the state, allows in the process of collecting taxes to take into account the solvency of taxpayers and level the tax burden, etc. The use of this principle should be based on a competent combination of direct and indirect taxes.

Organizational principles of taxation

These include:

  • The principle of taxation universalization - the application of this principle implies the same approach when calculating taxes, regardless of the sources of income and the place of their formation. It is impossible to allow the establishment of elevated and differentiated tax rates depending on the forms of ownership of organizations, industry affiliation, citizenship, etc.
  • The principle of convenience and time of tax collection for the taxpayer - tax collection should not provide inconvenience to the taxpayer. Documents for payment should be as simple and clear as possible; the income tax of the organization's employees is paid by the organization itself, etc.
  • The principle of the division of taxes by levels of government - federal, regional and local authorities have certain powers in the introduction, abolition of taxes, with the establishment of tax exemptions, tax rates, etc.
  • The principle of the unity of the tax system - the state should not establish taxes that will somehow restrict the movement of goods, works, services or financial resources in the country. It is also impossible to limit the implementation of economic activity by economic agents or create barriers to its path.
  • The principle of publicity - all laws, regulations that relate to the tax system should be officially published and explained.
  • The principle of simultaneity - the same object should be taxed with only one tax once per statutory tax period.
  • The principle of certainty - laws in the field of taxation should not allow arbitrary interpretation.

Legal taxation principles

These include [3]:

  • The principle of the legislative form of the establishment means that taxes cannot be arbitrary, but must follow from the law. We can not allow the established taxes to violate the constitutional rights of citizens.
  • The principle of prioritization of tax legislation - in laws that regulate non-tax issues, there should not be rules of law that establish a special tax regime.
  • The scientific approach to the formation of the tax system - after paying the tax the taxpayer must use a portion of the income that will ensure his normal existence.


  1. Calvin A. Kent (2015), p. 2-5
  2. The Scottish Government (2013), p. 51-54
  3. Paul Bernd Spahn (1995), p. 8-10


Author: Valeriia Nezdolii